Buyouts more popular than longevity risk hedging, according to research

by Artemis on May 11, 2011

Research undertaken by MetLife Assurance shows that pension fund trustees looking to de-risk their pension schemes are more interested in bulk annuity buy-ins and buy-outs than longevity hedging and longevity swaps, says an article in Professional Pensions. Last year their study showed longevity risk hedging as the second most popular de-risking strategy, this year it has dropped to third (replaced by buy-ins/outs).

Asset risk hedging solutions are the top solution that trustees are considering, with 48% of those planning to de-risk looking at this solution. 34% are considering buy-ins/outs. 90% of pension schemes consider de-risking as important to their overall strategy, with 60% saying that de-risking has become a higher priority in the last two years. Investment risk is the top issue for trustees, closely followed by longevity risk.

We don’t believe this shows a decreasing interest in longevity risk transfer, rather it shows an appreciation for a more holistic approach to risk management by pension funds. With longevity risk highlighted as the second largest concern it’s inevitable that schemes will have to find ways to manage it and a number will certainly choose to get the longevity risk off their hands through a transfer of sorts. The longevity risk transfer market is primed to explode, according to many people in the market, but really needs more standardised contract terms and methods of transferring longevity risk. Hopefully the recent news from the Life & Longevity Markets Association (LLMA) about taking ownership of the J.P. Morgan LifeMetrics Index could help to speed products to market.

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