£40 billion of UK pensioner longevity risk already transferred

Since the longevity risk transfer and pensioner longevity de-risking market began in earnest in 2006 over £40 billion of pensioner liabilities have been transferred using instruments such as longevity swaps, buy-ins and buy-outs according to an update from Hymans Robertson. The total volume of risk transfer deals is expected to surpass £50 billion by the end of the year as longevity risk transfer interest continues to grow and the market is expected to match 2011 for deal volume.

2011 saw £12.4 billion in pension and longevity risk transfer deals, with £8.5 billion concluding in the fourth quarter alone. Hymans Robertson says that UK pensions schemes have now hedged longevity risk for around 10% of pensioners since 2006. The longevity swap market is playing a growing role in the pension risk transfer market, with twelve longevity risk transactions providing £14.2 billion of risk transfer since 2009.

The report from Hymans Robertson suggests that 2012 could be another good year for longevity swaps as new entrants and growing interest helps to keep prices competitive with other forms of risk transfer. James Mullins, who heads up Hymans Robertsons buyout solutions team said; “As long as banks and insurers continue to provide a flexible approach to make these risk transfers feasible and affordable to all pension schemes, we will see more deals in the pipeline and indeed more insurance companies looking to enter into this market.”

On the year ahead, Mullins said; “2012 looks set to be as buoyant as 2011 for the pensions risk transfer market as pension schemes continue to engage longevity swaps and buy-ins. Providers will continue to ramp up their efforts to meet this demand which is likely to see insurance companies and banks take on a total of over £50 billion of pension scheme liabilities before the end of 2012.”

Competition amongst service providers such as banks, insurers and reinsurers is also expected to help keep prices down for longevity risk transfer solutions. It will be interesting to see whether longevity securitisation in the format of an insurance-linked security makes a reappearance in 2012.