UK based insurer Legal & General, who were recently involved in the £1 billion longevity risk transfer transaction with the pension scheme of Pilkington (which we covered here) are seeking to bring longevity risk transfer solutions to smaller pension schemes. They want to target schemes which have pensioner liabilities of as low as £50m, saying that there is a need for these small pension schemes to transfer their longevity risk to other parties just as much as for the larger billion pound/dollar schemes.
L&G say that due to the smaller size of these schemes they are often not as prepared to deal with longevity risk anyway, they have a lack of mortality data and don’t have the resources to analyse it, meaning it can be more important for these small pension schemes to address their longevity risk.
L&G say that they have simplified the longevity insurance process, by managing the longevity risk for the scheme in-house and then reinsuring at a later date. By taking the reinsurance out of the equation when the risk transfer is put in place they say they can make longevity risk transfer quicker and cheaper for these smaller schemes.
If this initiative works it could see L&G assume significant amounts of longevity risk which they will seek to bundle and reinsure or swap to other parties. As the volume of longevity risk being swapped and reinsured grows this could in turn stimulate the need for the securitization market to provide solutions to allow for longevity risk to be passed more efficiently to capital market investors.