Canadian pensions to increasingly seek longevity swaps in 2017


Pension plans in Canada are expected to increasingly look to insurance and reinsurance capital to offload the risks of their pensioners living longer than expected through longevity swaps in 2017, according to a report.

With interest rates expected to rise and as a result pension plan funding conditions expected to ease in 2017, more Canadian pensions could look to the use of longevity risk transfer to get additional risks off their books this year.

In an interview with Canadian newspaper the Globe & Mail, Jean-Philippe Provost, a senior partner at consultancy Mercer, said pensions should face stable-to-positive funding conditions in 2017 as the Canadian economy is expected to grow and interest rate movements should be positive.

As pension plans in Canada get nearer to fully-funded status, Provost explained that it becomes easier for them to access instruments such as longevity swaps, which will help them to reduce their future funding risks.

Longevity insurance and swaps are in fact more attractive than annuities right now, Provost explained, as the still low interest rates make annuity investment less desirable for some pension funds. As a result longevity swaps should be “a more attractive option for 2017.”

“We’re seeing a lot more interest from plan sponsors in regards to that,” Provost said.

Longevity swaps have historically been extremely very complex to structure and price, Provost explained, adding that steps taken by the market have made them simpler and more accessible to even smaller pension plans.

Citing data from the Artemis Longevity Risk Transfer Deal Directory, the article gives the example of the recent $35 million Canadian Bank Note longevity hedge as a sign that longevity swaps are now more accessible and open to Canadian pensions.

Prior to that the CA$5 billion Bell Canada Pension Plan (BCE Inc.) longevity swap and reinsurance deal in 2015 was the only Canadian example.

Longevity swap activity has been largely reserved for UK and European pensions to date, but the market has now broken into Canada and growth in that market is anticipated.

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

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