Attractive pricing to drive further longevity swap deals: Aon

Aon said it is expecting to see a number of large longevity swap transactions completed during the second-half of 2019, as longevity risk transfer and reinsurance pricing remains attractive.

Activity has been slower in the longevity swap market for a time, although longevity reinsurance and pension risk transfer activity in general has been buoyant.

But the market was kick-started again with the recent £7 billion HSBC UK pension scheme longevity swap deal, which saw Prudential providing the reinsurance to take on the risks, while HSBC uses its captive as an intermediary insurer.

Insurance and reinsurance broker Aon believes that this could be just the start of a period of higher activity levels in longevity swaps and risk transfer, as pricing is conducive to getting deals done which could bring more pensions to the market.

While there were no publicised longevity swap deals for UK pensions in the first-half of the year, Aon said that it believes longevity risk transfer capacity pricing is attractive, which is largely due to the reinsurance providers having ample capacity for this type of risk we believe.

As a result of this, Aon said, “We are expecting several large longevity swaps to be transacted in the second half of 2019, and early in 2020.”

The broker cited, “strong capacity in the reinsurance market and continued capital availability for insurers,”  which can only help to ensure more pension longevity deals get completed.

Large bulk annuity deals are expected, but so too are pure longevity risk transfer transactions, as similar to the recent Rolls-Royce restructuring of a longevity swap arrangement, “schemes can use a longevity swap as a stepping stone to securing an annuity in the future,” Aon explained.

Read about many historical longevity swap and reinsurance transactions in our Longevity Risk Transfer Deal Directory.