A group of insurers and banks has joined forces to establish an association to develop a liquid traded market in longevity and mortality-related risk.

The Life and Longevity Markets Association (LLMA) will support the development of consistent standards, methodologies and benchmarks to help build a liquid trading market. This is needed to support the future demand for longevity protection sought by insurers and pension funds as well as hedge funds trading these instruments.

Founding members include AXA, Deutsche Bank, JP Morgan, Legal & General, Pension Corporation, Prudential, RBS and Swiss Re.

Liquid traded markets already exist for risks such as interest rates, inflation and insurance linked securities. The LLMA believes such a market can also be developed for longevity and mortality-related risk.

LLMA director John Fitzpatrick said longevity risk was starting to move to pension insurers and reinsurers in significant volumes but much more was likely in the future from pension funds anxious to control future liabilities.

Increasing numbers of pension funds are trying to stabilise their liabilities through longevity insurance and swaps.

Previously capacity has been absorbed by the insurance and reinsurance markets. With liabilities in the UK alone topping £2 trillion capacity would be insufficient to absorb future risk, Fitzpatrick said.

The LLMA plans to establish standards, conventions and best practices to promote liquidity in the trading of financial instruments that reference longevity and mortality related risks.

The primary focus of the association is pension-related longevity and mortality, rather than life settlements. In the short term the LLMA will be primarily focused on the UK market for longevity and mortality, but may later expand its horizons to other countries.