Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Club Vita, Legal & General to expand access to longevity risk transfer


Specialist longevity risk information provider Club Vita and insurance and reinsurance player Legal & General have teamed up to bring longevity risk transfer to a wider audience of pension schemes, with the goal of providing an automated longevity insurance pricing service.

The impact of longevity risk has been rising steadily for defined benefit pension schemes, and it is now a bigger exposure than ever before for pensions, as defined benefit schemes mature and dial down their investment risk.

“There are good reasons to anticipate an upswing in longevity management deals. With negative real yields on UK gilts, the impact of longevity risk – i.e. the cost of continuing to pay pensions when people live longer than expected – has risen by 50%. This is in the context of the risk of yields staying low or getting lower increasing following the Brexit vote,” explained Douglas Anderson, founder of Club Vita.

He continued; “This comes at a time when schemes are maturing and reducing their exposure to investment risk. Consequently longevity risk now represents a larger slice of the risk pie than ever before. It’s therefore inevitable that longevity risk management will move higher up the agenda for those running DB schemes.”

To counter this risk the two companies have launched VitaHedge, a service that will bring automated, tailored indicative longevity insurance pricing to each of the 200+ Defined Benefit (DB) pension schemes supporting Club Vita.

The pair note that while longevity risk transfer, longevity swaps and reinsurance deals have been proliferating, the average value of the reserves for pensions in payment in these deals is almost £2 billion, but still only two transactions of less than £500m have been completed.

With the VitaHedge service providing pricing indications the hope will be that more of the defined benefit pension schemes in the UK see that longevity risk transfer or insurance can be made affordable and are encouraged to offload their longevity risk, thus becoming more capable of managing their pension liabilities and maintaining responsibilities to pensioners.

Anderson noted that there are issues that discourage pension schemes from investigating longevity risk transfer, including the requirement for complex legal agreements, the need to manage collateral and the cost of obtaining insurance quotations.

VitaHedge will provide pensions with a view of the indicative cost of obtaining longevity insurance coverage, thus making the process simpler and more efficient. Combined with other developments, such as the use of captive vehicles in order to enter into longevity swaps backed by global reinsurance capacity more efficiently, the costs could come down even further making longevity risk transfer more accessible.

Anderson continued; “VitaHedge is a natural extension of Club Vita’s existing data services. Until recently, insurers have only been confident to offer attractive prices to the biggest schemes, but that’s now starting to change. Club Vita is proud to be opening up the benefits of longevity hedging to a wider audience of pension funds.”

Phill Beach of Legal & General, also commented on the announcement; “Legal & General has a proud history of delivering new and innovative pension risk transfer solutions to pension schemes of all shapes and sizes. Longevity insurance has an important role to play in pension de-risking journey plans and has historically been utilised by only the largest pension schemes and insurance companies in the UK. We believe VitaHedge will help smaller and medium sized pension scheme overcome the barriers they have historically faced. We are delighted to work with Club Vita to help improve the accessibility of longevity management solutions at a time when the costs of this risk are increasing for pension schemes.”

The entire market is working towards making longevity risk transfer, through insurance, longevity swaps and backed by reinsurance capital, more efficient and cost-effective. Ultimately this will result in an increased need for reinsurance capacity, perhaps in time providing an opportunity for the ILS market and its investors to become more involved.

You can read about many recent longevity swaps and longevity reinsurance transactions in our Directory here.

Register today for ILS NYC 2023, our next insurance-linked securities (ILS) market conference. Held in New York City, February 10th, 2023.

Artemis ILS NYC 2023 - Insurance-linked securities conference in New York City

Get a ticket soon to ensure you can attend. Secure your place at the event here!

Print Friendly, PDF & Email

Artemis Newsletters and Email Alerts

Receive a regular weekly email newsletter update containing all the top news stories, deals and event information

  • This field is for validation purposes and should be left unchanged.

Receive alert notifications by email for every article from Artemis as it gets published.