But sharing across all generations, including the unborn, requires collective or public insurance through variations in the national debt.22 Consider an annuity provider who faces the risk that an increase in the average longevity of its pool of annuitants will lead to a shortfall in its funds. The annuity provider would clearly like to hedge this risk in some way. One way of doing that would be for it to have assets on its balance sheet that pay out more if the average longevity of its annuitants increases. Financial markets are currently developing ‘longevity bonds’ along these lines.23 The interest rate on longevity bonds is linked to some measure of unexpected changes in average life expectancy. In the case of the recently announced European Investment Bank-BNP Paribas bond, the payout each year for the next 25 years will be a fixed sum multiplied by the proportion of people in England and Wales who were 65 in 2003 that are still living in that particular year. So if five years from now 90% of the cohort are still alive, the payment in that year will be 90% of the fixed sum. The cash flows to a buyer of this bond will decline over time, but decline less rapidly if people live longer. The demand for such a hedge against longevity risk we might expect to come from pension funds and other providers of annuities.
The relevant models change from one forecast to another. 4  BIS Review 73/2004  behaviour of the economy. The results of that discussion are published once a month, and the Committee, as it did yesterday, appears regularly in front of Parliamentary committees. So I turn now to the question of how information and judgments of risks can be communicated to the general public. 4. Communicating about risks with the public  Although it is often impossible to be precise about the risks surrounding a decision, it is vital that policymakers resist the temptation to communicate a false sense of certainty. Two key principles should govern the communication of risks to the public. First, information must be provided objectively and placed in context so that risks can be assessed and understood. Second, experts and policymakers must be open about the extent of our knowledge and our ignorance. Transparency about what we know and what we don’t know, far from undermining their credibility, helps to build trust and confidence in policy-makers. (a)  (Mis)understanding probabilities  The first principle states that information about probabilities should be placed in context. A simple example illustrates the difficulty we all have in interpreting probabilities when the context is unclear. The stock market is volatile and difficult, if not impossible, to predict over short periods. At the beginning of the week the chance of the market rising over the following week is roughly the same as the chance of its falling.