Longevity risk transfer nears record. 2021 to be busy again despite pandemic: WTW

The market for longevity swaps and longevity risk transfer has hit forecasted volumes in 2020 despite the implications of the global COVID1-9 pandemic and Willis Towers Watson believes another busy year is ahead in 2021.

The longevity de-risking market, where pensions transfer their longevity risk to global reinsurance markets, has proven resilient in 2020 and despite the “turmoil” broker Willis Towers Watson (WTW) notes that more than UK £30 billion of pension buy-ins and buy-outs, plus UK £24 billion of longevity swaps have been completed.

We’ve documented many of the longevity swap and reinsurance focused deals in our directory here.

The broker forecasts a busy 2021, with “several more” longevity swap transactions already in progress for early 2021.

Despite the challenges that the COVID-19 pandemic raised for pensions, 2020 may end up beating 2019 to become the biggest ever year in the longevity risk transfer market.

Combined transaction values, across pension risk transfer and longevity swaps are expected to be very close to the UK £56 billion seen in 2019.

Similar activity levels are forecast for 2021, as WTW predicts we could see another £30 billion of buy-ins and buy-outs, plus £25 billion of longevity swaps next year.

Shelly Beard, Senior Director in Willis Towers Watson’s Transactions team, said:

“The fact that the longevity de-risking market has hit the volumes we predicted in December 2019, despite all of the unanticipated head winds in 2020, is a testament to the strength of the market and the focus that trustees and sponsors have shown this year to do the right thing for members.

“A few years ago, many were predicting exponential growth in this market, whereas 2019 to 2021 will all have very similar new business volumes. This reflects general falls in scheme funding levels over 2020 as well as the many other priorities trustees have to focus on this year and next – most notably GMP equalisation.

“Looking beyond 2021 we expect the market to grow further. Our clients recognise that future prospects for longevity are more uncertain now than at perhaps any time in recent memory. This means that, where it is affordable to so, transferring risk to the insurance market is the prudent thing to do.

“The key thing for schemes going into 2021 with de-risking ambitions is to stay agile on the timing of any deal. It seems likely that 2021 will be another year of uncertainty and this may present opportunities for well prepared and flexible schemes.”

Reinsurance capital remains abundant, of course, and drives the ability for pensions to access sources of risk transfer and swap capacity to offload their longevity risk.

There had been some uncertainty over how the pandemic would affect mortality projections, but at this time pensions are being advised not to let this change their de-risking plans and to take advantage of attractive market conditions for longevity swaps and other instruments.

We have over UK £24 billion of longevity swaps listed in our deal directory for 2020, making this the biggest year in the longevity swap market for some time.