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Will Senescent Cell Clearance Therapies Sink the Pensions and Annuity Industry?


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Posted 14 January 2017 - 01:07 AM


The annuity and pensions industries, private and public, include some of the largest of all financial institutions. Collectively they are enormous, representing a staggering amount of money under management. To simplify a complex picture greatly, most of these programs take the form of a wager against longevity. The competing companies that issue annuities and manage pensions make offers of future payments to their customers based on the consensus predictions of life expectancy, and on their own private models that seek to improve on that consensus for specific demographics and thereby price the future more effectively than their competitors. Customers seek the greatest payout, while companies seek the payout that will maximize overall profit by some mix of attracting more customers from competitors and greater per customer profit. Customers that live longer than expected drain away profit, but historically this has been balanced by those who died early, as the consensus mortality predictions have on the whole been pretty good in the past.

Still, signing a contract is a long bet, realized over decades, and this is an era of very rapid progress in biotechnology, coupled with an important change in the focus of the medical research community, now looking at the causes of aging where before they did not. I have said for years that I think it very likely that a majority of the presently outstanding wagers against longevity have now become very bad for the issuing companies. Why is this the case? Because it is likely that the first rejuvenation therapies will be comparatively cheap, become quickly and widely available via medical tourism within a few years of their discovery, and prove effective. By "effective" I mean something in the ballpark of adding five years to the life expectancy of the average 60-year old. From where I stand, senescent cell clearance via senolytic drugs has the strong possibility of realizing this sort of outcome. Five years of additional payments for a large percentage of contracts would be a real issue for financial institutions: while an increasing amount of hedging has been voiced by actuaries over the past decade, the consensus models in the actuarial industry make no provision for a sudden jump in life expectancy along these lines. No company has priced in this possibility, as they'd be quickly outcompeted by their less wary competitors. Thus a large fraction of the contracts issued over the past 20-30 years, and of those issued today, are going to look increasingly risky as senescent cell clearance moves ahead.

Chaos in the financial industry as a result of all this is not a distant possibility, either. The solvency of financial institutions is a matter of perception as well as hard figures, but beyond this consider that annuities and pensions have been packaged and resold as derivatives, or otherwise used as collateral for leverage by the issuing organizations. Companies have borrowed on the value of their annuity and pension contracts, and high levels of leverage are very common these days, causing vulnerability to sudden changes in expectations. This is a failing of our era, as exhibited in numerous financial instruments over the past few decades; mortgages spring to mind, for example. The values of annuity and pension contracts packaged for the financial industry are assessed on an ongoing basis on an expectation of future income and expenses. As the consensus for future longevity shifts, companies will be greatly impacted or even bankrupted as a result of changes in predicted future outcomes, magnified by the leverage of assets.

To be clear, pensions are already heading towards a bad end in many countries even without the advent of effective rejuvenation therapies. Government bodies and other entities have found it all too easy to make unsustainable promises, or to let themselves be effectively looted by present caretakers. Insolvency and unsustainable future obligations are everywhere. This is one of many forms of widespread corruption in which those with the ability and the short-term interest steal from the public purse in the expectation that higher powers in government will bail them out. Historically, this doesn't seem like an unreasonable expectation, sad to say. So the losses will be spread out over the population, or kicked down the road for some future generation to be bankrupted by. Sooner or later there will be a major collapse in economic stability or currency or government in the affected regions - and the sooner the better, as the longer this goes on, the worse and more protracted the collapse that will result. Life will go on afterwards, the progression to the long-term golden future picking up where it left off, but all of this short-sightedness and self-sabotage in the near term is so very needless.

One of the ways in which the savaging of the annuity and pensions industry might be minimized is through a bailout of some sort. This is, as I said, quite a likely outcome given recent history, but all it does is make the larger economic problem worse. Further, it will probably happen again as new rejuvenation therapies emerge. Another possibility is for this industry to lobby for dissolution or alteration of existing contracts, which again seems like a plausible outcome, essentially the use of political power to carry out a form of fraud by force upon every counterparty who signed something that later proved inconvenient. It is also possible that the availability of senolytic therapies via medical tourism, and at a reasonably low cost, will not lead to widespread adoption rapidly enough to bankrupt annuity and pension companies. This seems to me unlikely to help make the problem very much smaller, however. This scenario would make the problem occur later, further down the line, say a decade after it might have happened with rapid adoption of therapies. If an increase of five years of life extension is bankrupting in 2020, it is likely to still be highly problematic in 2030: the majority of the problem contracts be will still be around, active, and their owners expecting to be paid for a long time yet.

Do I think it is worth putting money into an annuity? I think this is a good wager in a world in which issuing companies have infinite resources, but this isn't that world. Sooner or later you will get cut off, via one of the mechanisms mentioned above. The important risk is that this might happen sooner to the point at which you'd have been better off investing elsewhere. The whole situation is very uncertain on timing and outcomes over the next few dacades, and that is rather the point I'm trying to make here.


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