In order to describe how pre-defined catalyst events can be of use in this area, it may be helpful to briefly recap on the types of longevity hedge currently available to longevity stakeholders seeking to mitigate their exposure.
In very broad terms, these come in two flavours
cash flow hedge (typically in respect of in-payment liabilities) involving the exchange of fixed and floating payments for the whole term of the underlying liabilities
value hedge (typically in respect of deferred liabilities, not yet in payment) involving a payment at some future finite duration from inception (say 15 years) intended to serve as a proxy for the value of any additional liability faced at this point (resulting purely from longevity experience over the period).
Well documented drawbacks of the latter can include
basis risk (the population underlying the hedge payout may be different to the underlying liabilities being hedged)
roll forward risk (denoting uncertainty of terms available at the end of the term of the hedge to renew the cover)
"event" risk (the risk of one or more events over the term of the contract which cause universal increases to longevity expectations but have no impact on the hedge payout which is based only on experience and is not reflective of changes to expectations)
The existence of a well defined, objective and widely agreed set of Longevity Catalysts can provide a platform for addressing the last of these.
For example the final payout from a 10 year hedge could be structured so that it is (at least in part) linked to the occurrence of one or more Longevity Catalysts. Objective definitions thereof should lend themselves to simple unadjusted inclusion within legal agreements.
The exact terms and magnitude of resulting payout will be a matter of negotiation between the two parties.
It may be that "(perceived) low probability / high severity" type catalysts are mostly included for this purpose as the hedge seeker wishes to guard against those scenarios which could be very damaging without making the trade prohibitively expensive. Clearly, the the ability of the hedge provider to be comfortable in assigning probability to such events is a key issue and the offering may be balanced by including Mortality Catalysts whose occurrence are favourable for the hedge provider.
Note that there are precedents of a sort in the area of catastrophe risk where hurricane and earthquake bond cash flows are contingent upon the occurrence of a specified event or series of events.