Managing Viagers Securitization and Life Extension Risk

It is possible in France to finance the purchase of a property with a viager in lieu of obtaining a traditional mortgage loan, where the purchase price of the property, or balance of the price if a down payment is made (the bouquet), is converted into an annuity that the buyer agrees to pay for the remainder of the seller's life. Insurance companies in France have been significant investors in the viager market for many years. The cash flows generated by pools of viagers can thus mirror those from pools of life insurance policies. We propose in this paper a model that values the possible securitization of viagers and that values life extension risk. The securitization of viagers gives insurance companies an opportunity to create portfolios where mortality risk can be hedged by life extension risk.