US2014052665A1PendingUtilityA1
System and method for managing hedging of longevity risk
Est. expiryMar 26, 2029(~2.7 yrs left)· nominal 20-yr term from priority
G06Q 40/08G06Q 40/06
48
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Claims
Abstract
A computer implemented method and system are provided for implementing a longevity bond management system for managing hedging of longevity of beneficiaries. The method may include issuing, through a special purpose vehicle, using computer processing components, a longevity bond having returns following a longevity index defined for a reference population of a pre-selected cohort of beneficiaries. The method may additionally include receiving from investors a payment amount for investment in the longevity bond, investing the payment amount in a collateral pool held by a custodian, and receiving cash flows from the investment in the collateral pool. The method may further include entering into a swap to exchange the cash flows from the investment for an amount equal to the difference between an actual and best-estimate longevity index amount and calculating, using computer processing components, based on the longevity index, a periodic payment to the investors based on the longevity performance of the pre-selected cohort of beneficiaries, such that the periodic payment increases when longevity exceeds expectations and decreases when longevity falls short of expectations.
Claims
exact text as granted — not AI-modified1 - 10 . (canceled)
11 . A computer-implemented longevity bond management system for managing hedging of longevity of beneficiaries, the longevity bond management system comprising:
index calculation components for calculating a longevity index defined for a reference population of a pre-selected cohort of beneficiaries; issuance components for issuing through a special purpose vehicle, using computer processing components, a longevity bond having returns following the calculated longevity index defined for a reference population including a pre-selected cohort of beneficiaries; investor interfacing components for receiving from investors a payment amount for investment in the bond and forwarding a calculated periodic payment to the investors; custodian interfacing components for investing the payment amount in a collateral pool held by a custodian and receiving cash flows from the investment in the collateral pool; a swap execution engine for entering into a swap to exchange the cash flows from the investment for an amount equal to the difference between an actual and best-estimate longevity index amount; and a payment calculation engine calculating, using computer processing components, based on the longevity index, a periodic payment to the investors based on the longevity performance of the pre-selected cohort of beneficiaries, such that the periodic payment increases when longevity exceeds expectations and decreases when longevity falls short of expectations.
12 . The system of claim 11 , wherein the pre-selected cohort implemented by the index calculation components comprises female beneficiaries of male annuitants, wherein the female beneficiaries are within a twenty to thirty year age span at inception of the index and further defining the cohort as restricted to beneficiaries under a maximum age.
13 . The system of claim 12 , wherein the cohort includes female beneficiaries between ages sixty and eighty five at inception of the index.
14 . The system of claim 13 , wherein female beneficiaries drop out of the cohort upon reaching an age of ninety.
15 . The system of claim 11 , wherein the index calculation components define the longevity index for the cohort for time t years after inception as follows:
S
t
observed
=
∑
y
=
60
91
-
max
(
t
,
6
)
b
y
·
I
t
,
y
observed
where I t,y observed is the cohort specific survivorship index, given by
I t,y observed = t p y f,observed ·[1−(1− w y initial )· t p y+k(y) m,observed ]
where y labels the cohort and represents age at the start of the index, b y is an initial weight of all female beneficiaries in the cohort as a proportion of all female beneficiaries aged sixty to eighty five, calculated by annual annuity amount; t p y f,observed is an observed survival rate from time 0 until time t for the age y cohort of female beneficiaries; w y initial is an initial weight of widows among all female beneficiaries in cohort y calculated by annual annuity amount, k(y) is the average age difference in years between male annuitants and female beneficiaries in cohort y, weighted by income amount; t p y+k(y) m,observed is the observed survival rate from time 0 to time t for the y+k(y) cohort of male annuitants.
16 . The system of claim 11 , wherein the investor interfacing components invest in a low risk debt product.
17 . The system of claim 11 , wherein the investor interfacing components invest in government issued bonds.
18 . The system of claim 11 , the swap execution components facilitate exchanging cash flows between the special purpose vehicle and a financial institution and allowing the financial institution to transact with a super-national entity such that the super-national entity directly transact with the special purpose vehicle to enable the special purpose vehicle to receive a difference between an actual and best-estimate longevity index.
19 . The system of claim 18 , wherein the swap execution components enable the super-national entity to provide credit enhancement to a re-insurer and the reinsurer to underwrite longevity risk.
20 . The system of claim 11 , wherein payment calculation components calculate the periodic payment to investors for a payout date comprises adding an initial annuity amount to a product of the initial annuity amount and an initial longevity index forecast and multiplying the sum by a difference between an actual value of the longevity index on the payout date and an initial forecast of the longevity index for the payout date.
21 . A computer implemented method for implementing a longevity bond management system for managing hedging of longevity of beneficiaries, the method comprising:
defining a longevity index for a cohort for time t years after inception as follows:
S
t
observed
=
∑
y
=
60
91
-
max
(
t
,
6
)
b
y
·
I
t
,
y
observed
where I t,y observed is the cohort specific survivorship index, given by
I t,y observed = t p y f,observed ·[1−(1 −w y initial )· t p y+k(y) m,observed ]
where y labels the cohort and represents age at the start of the index, b y is an initial weight of all female beneficiaries in the cohort as a proportion of all female beneficiaries aged sixty to eighty five, calculated by annual annuity amount; t p y f,observed is an observed survival rate from time 0 until time t for the age y cohort of female beneficiaries; w y initial is an initial weight of widows among all female beneficiaries in cohort y calculated by annual annuity amount, k(y) is the average age difference in years between male annuitants and female beneficiaries in cohort y, weighted by income amount; t p y+k(y) m,observed is the observed survival rate from time 0 to time t for the y+k(y) cohort of male annuitants;
issuing, through a special purpose vehicle, using computer processing components, a longevity bond having returns following the longevity index defined for a reference population including the cohort; receiving from investors a payment amount for investment in the longevity bond; investing the payment amount in a collateral pool held by a custodian; receiving cash flows from the investment in the collateral pool; entering into a swap to exchange the cash flows from the investment for an amount equal to the difference between an actual and best-estimate longevity index amount; calculating, using computer processing components, based on the longevity index, a periodic payment to the investors based on the longevity performance of the pre-selected cohort of beneficiaries, such that the periodic payment increases when longevity exceeds expectations and decreases when longevity falls short of expectations; and
forwarding the calculated period payment to the investors.Cited by (0)
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