Hedging Longevity Risk using Longevity Swaps: A Case Study of the Social Security and National Insurance Trust (SSNIT), Ghana

摘要

E?ective management of longevity risk is essential for every institution which is exposed to longevity risk. De?ned bene?t schemes in Ghana are especially exposed to longevity risk due to increasing life expectancy in Ghana. In this study we explore a hypothetical hedging strategy based on longevity swaps for the SSNIT pension scheme. We use the Cairns-Blake-Dowd model to forecast future mortality rates of pensioners from age 71 to 90. With the forecasted mortality rates, longevity swap contract was designed whereby realized mortality rates would be swapped with the forecasted expected mortality rates. The payout structure under the swap ensured that the SSNIT’s liability was completely hedged against longevity risk.