"Two's a coincidence," the old adage goes; "three's a trend." So when Goldman Sachs Group Inc. recently introduced a longevity and mortality index, it seemed to be the start of a movement. Goldman joined JPMorgan Chase & Co. and Credit Suisse First Boston in a drive to create a tradeable market for a new breed of derivatives that would hedge the risks associated with lengthening lifespans. The goal, explains Alex Dubitsky, head of Goldman's longevity markets group, is to create transparent pricing for these newfangled instruments.

It's the type of product that defined benefit (DB) pension plan sponsors dream of, providing the ability to lay off what could become a plan's most volatile risk given the demographic bulge about to enter retirement age. "The potential for exposure is enormous," notes Jesse Schwartz, consulting actuary at Watson Wyatt Worldwide, which helped JPMorgan develop its LifeMetrics Index.

The Goldman product is an index swap that plan sponsors, insurers and reinsurers might use, once the market is developed, to replace other corporate efforts to spread risk. Initially, the index would more likely be used as just another investment vehicle.

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