Longitude Exchange, the Bermuda-based digital marketplace for trading in index-based longevity risk, and Dedomainia, a technology company offering longevity swap solutions, are to collaborate on index-based longevity hedging.
The pair said they will jointly work on techniques and processes for monitoring, administering, and valuing index-based longevity risk hedging transactions.
Dedomainia has built a cloud-based administration and analytics platform named LISA that automates the processing of fragmented longevity information.
This is seen as a particularly challenge in the insurance and reinsurance industry, something that holds back greater traction in efficient longevity risk hedging.
Dedomainia’s tools make valuation and tracking of specific pension portfolios and longevity swaps simpler, which is key to being able to assess basis risk within an index-based longevity hedge covering the same set of lives.
Cedric Fetiveau, Co-Founder of Dedomainia commented, “We have developed a unique language and workflow to simplify longevity operations to a couple of button clicks, while bringing connectivity between different systems like accounting and valuation. Now, with Longitude Exchange, we’re excited to see how our technology can assist in efficiently valuing and managing index-based longevity risk hedging transactions.”
Longitude Exchange has built a technology platform that has been specifically optimised for the trading of longevity risk, specifically in index-based format.
The objective of this is to bring in more capital markets participation to an emerging longevity risk asset class, which should be of specific interest to those insurance-linked securities (ILS) fund managers and investors for who longevity risk is an appealing asset.
Longitude Exchange also aims to lower frictional costs and timelines through standardisation of longevity hedging, while also providing price transparency and presenting an option for secondary liquidity on its exchange, all of which could stimulate more transaction volume.
The collaboration will see the two companies looking to use Dedomainia’s longevity swap administration service, LISA, to assist hedgers using index-based longevity risk transfer transactions to quickly and accurately measure and monitor their basis risk.
“The longevity risk market will benefit from more standardized and liquid contracts, as this will extend the capital base beyond the existing specialist players to a broader set of institutional investors. For this to happen, hedgers need to be confident these transactions will reduce their risk and capital as intended,” Avery Michaelson, Co-Founder and CEO of Longitude Exchange explained. “Being able to assess basis risk on a more frequent and granular basis, a topic we’re discussing with Dedomainia, will help longevity risk hedgers in modeling and accounting for these trades.”
Michaelson and Fetiveau both have experience gained from working on specific index-based longevity hedging transactions while at investment banks Société Générale and Deutsche Bank, respectively.
“It is really impressive what Cedric and his team have built with Dedomainia. Their company has been a driving force to enhance efficiency in the indemnity longevity swap market to date, and now we’re pleased to leverage their ingenuity for advancing the index side of the market,” Avery said.
Fetiveau added, “Longitude Exchange has the potential to move the longevity market forward in its evolution by a generation – Dedomainia looks forward to taking part in that with them.”