Insurers are weighing a new strategy for coping with the cost of baby boomers living longer than expected: issuing bonds.

Banks began shopping at least two "longevity" bonds to potential investors in recent weeks, the biggest spurt of activity the fledgling market has seen. One is expected to close in late March.

The bonds are sold with assumptions about how long people in the issuer's pool will live. Bondholders receive regular payments, but may see their principal eroded if the issuer needs money to plug any shortfall in its reserves caused by longer life spans.

Corporate pension plans and life insurers pay for their own protection against longevity, through insurers and reinsurers, respectively. Those insurers and their reinsurers could then use longevity bonds to transfer some of their risk to investors.

The first longevity bond was a $50 million issue in December 2010 from Swiss Re's (SREN.VX) Kortis Capital Ltd. The bond matures in January 2017 and it priced at an interest rate of 472 basis points over the six-month London interbank offered rate, a benchmark.

The next came from Dutch insurer Aegon N.V. (AEG), which in February 2012 brought a EUR300 million ($402 million) longevity bond arranged by Deutsche Bank to cover EUR12 billion of reserves. Aegon is back with its second deal, investors said.

Chris Madsen, head of risk structuring and transfer at Aegon, declined to talk about future deals. "We have received requests from several investors to participate in the old transaction or in future transactions," he said.

The market hasn't seen regular sales, primarily because investors were worried about the length of the bonds and the lack of active secondary-market trading allowing for a quick exit, said Pascal Koller, who invested in the Kortis deal and works for $20 billion Swiss asset manager LGT Capital Management.

Mr. Koller called longevity bonds "the holy grail for banks."

Investors may be more receptive to a run of deals this year, traders say, because the bonds offer rich yields at a time when low interest rates and booming demand are keeping yields on other types of debt low, said Niklaus Hilti, head of insurance-linked strategies at Credit Suisse Asset Management, who oversees $5.3 billion.

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Longevity' Bond Market May Spring to Life