UK - The Life & Longevity Markets Association (LLMA) has published the governance framework for its planned longevity index.

The framework is a co-operative attempt to provide a market for longevity risk transfer, with a widely accepted set of standards for the development of longevity indices.

The LLMA's members - which include AXA, Deutsche Bank, JP Morgan, Legal & General, Morgan Stanley, Pension Corporation, Prudential, RBS, Swiss Re and UBS - established the not-for-profit organisation in January.

The association said it expected demand in this area of the market to surge, estimating that exposure to longevity risk by pension funds in the UK alone came to more than £2trn.

It said it sought to "break down the barriers to market growth" by supporting the development of consistent standards, methodologies and benchmarks, allowing companies to execute hedges with greater certainty.

Guy Coughlan, chair of the LLMA technical committee, as well as a managing director at JP Morgan, said the proposal was a "significant milestone" in the creation of a longevity market.

"This standardisation will foster much-needed consistency in this area, providing greater comfort to first-time counterparties and improved efficiency in the execution of these transactions," he said.

When the idea of a longevity index was first announced, director John Fitzpatrick was clear to stress its development would occur faster than that of interest rate swaps and inflation swaps.

At the time, he said: "We have that as a precedent, we have a lot of experience at the table, and people are motivated to do this as soon as practicable."

Martin Bird, head of longevity and risk solutions at Hewitt Associates welcomed the proposal: "This is particularly timely given the continued interest in longevity risk management and executing risk transfer solutions from both scheme sponsors and trustees.

"We have already seen £6 billion of risk transfer deals signed during 2010, and it looks likely that this figure will be in excess of £10 billion by the end of the year," he added.

The organisation is asking for detailed feedback by email before unveiling the framework's final draft.

For more information, visit the LLMA.

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