Survivor Bond

A type of bond whose future coupons are based on the percentage of a stated population group who are still alive - the survivors, in other words - on the future coupon payment dates. As mortality increases and survivors of the group decrease over time, coupon payments decline until they eventually reach zero. Survivor bonds are used by annuity providers and pension plan managers to hedge aggregate longevity risk.

Longevity risk refers to the risk of loss sustained from an unanticipated reduction in mortality rates and a corresponding increase in longevity. While advances in health care and medicine have led to sustained increases in life expectancy over the years, aging populations are putting severe financial pressure on government pension plans around the world. Survivor bonds help annuity providers and pension plans hedge this risk, since these bonds are ideal for matching their liabilities in the presence of longevity risk.


Investment dictionary. . 2012.

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