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Background: Longevity risk, defined as the possibility of people outliving its expected life span, hurts pension systems because it implies a potential underestimation of reserves kept in order to fulfill future liabilities. Nevertheless, this has a positive connotation for life insurers, given that these companies may face a deferral in their liabilities when people live longer than expected. Methods: In this research paper, a longevity swap is proposed as an alternative to manage longevity risk, using the natural hedge arising from opposite positions regarding the same risk. In order to apply it to the management of the longevity risk faced by Mexico’s federal government, some changes were made in the general framework used to construct and value this kind of derivatives, adding a proportional longevity index and a monetization variable. Results: These modifications give the referred framework a wider scope; e.g., it can be applied to systems with growing number of pensioners, as the one created by the Mexican reform of 1997. Furthermore, a 50 year longevity swap between the Mexican government and a syndicate of life insurers and reinsurers is proposed, analyzed, and simulated and an ex post cost of 1.6 billon of 2017 pesos for the federal government is estimated. * Artículo recibido el 10 de junio de 2016 y aceptado el 19 de octubre de 2016. El autor agradece las sugerencias del dictaminador anónimo de El Trimestre Económico. Los errores remanentes son responsabilidad del autor. ** Profesor-investigador en la Universidad Panamericana, Campus Guadalajara. Escuela de Ciencias Económicas y Empresariales (correo electrónico: lurodriguez@up.edu.mx). EL TRIMESTRE ECONÓMICO, vol. LXXXIV (3), núm. 335, julio-septiembre de 2017, pp. 681-706 EL TRIMESTRE ECONÓMICO 335 682 Conclusions: Protection provided to the Mexican government by the proposed longevity swap is remarkable. However, its cost has to be considered, as it is biased by the expected longevity behavior.

Riesgo de Longevidad en los Sistemas Públicos de Pensiones en México: Una propuesta para atenuarlos por medio de productos derivados financieros