Longevity risk transfer news

The Bank of England’s Prudential Regulation Authority (PRA) is seeking to ensure that it has a sufficient level of oversight of the longevity risk transfer and reinsurance market as it evolves, stressing the need for transactions to feature a true transfer of risk.

Willis Towers Watson, the insurance and reinsurance broker and global professional services firm, says that it expects over £20 billion of longevity risk transfer and longevity swap or hedging deals in 2016, but with the year starting slowly.

The market for longevity swaps and risk transfer is forecast to be busy again in 2016, by Aon Hewitt, with a continued focus on bringing longevity reinsurance capacity more efficiently to smaller pension funds as well as larger deals.

UK headquartered insurance and pensions specialist Legal & General (L&G) and German headquartered reinsurance firm Hannover Re have teamed up to complete a €200 million European pension risk transfer and reinsurance deal.

Consultancy Mercer, insurance firm Zurich and reinsurance firm Pacific Life Re have assisted an unnamed UK pension plan to offload the longevity exposure associated with a “named life” group of pensioners in a streamlined longevity hedge.

The longevity risk transfer market, of longevity swap transactions and other reinsurance arrangements that hedge or transfer longevity risk, is particularly busy right now because of impending Solvency II regulation and the resulting capital requirements.

The RAC (2003) Pension Scheme has entered into a longevity swap transaction which sees $900 million (£600m) of its longevity exposure transferred to French reinsurance firm SCOR SE, removing one-quarter of the pension schemes longevity risk.

German reinsurance firm Hannover Re has entered into a longevity reinsurance transaction with Pension Insurance Corporation (PIC) simultaneously with the completion of the largest ever full pension insurance buyout between PIC and the Philips UK Pension Fund.

Demand from life insurance and reinsurance firms will drive continued growth and also global expansion of the market for pension longevity risk transfer and swaps, according to a report from Prudential Financial, Inc.

The establishment of a captive insurance entity for longevity swap transactions in an offshore domicile presents significant cost reductions and a beneficial operating environment for market participants, according to industry experts.