Longevity risk transfer news

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.

Financial, actuarial and business consultancy with a specialist focus on pensions, investment and insurance, Lane Clark & Peacock LLP (LCP), has announced the appointment of Murray Blake within its pension de-risking practice.

A lack of manpower and resources for pricing longevity risks in the global reinsurance market is resulting in pinch points at times, making timing especially important for pension funds looking to hedge their longevity exposure, according to Aon Hewitt.

Club Vita LLP, an initiative launched in 2008 by Hymans Robertson LLP to help pension plans better measure and manage their longevity, is expanding into Canada as longevity exposure has become the biggest unmanaged threat to defined benefit (DB) pension plans in the country.

Aon Hewitt has urged pension schemes and insurance companies to interpret a new set of mortality data for the UK with caution and to remain focused on long-term trends associated with longevity risks when making assumptions about the need for risk transfer.

The global longevity risk transfer market is primed for further growth as pension funds increasingly look to de-risk their pensions plans and, similar “catalysts that transformed” the U.K. longevity reinsurance sector begin to make moves in the U.S. and elsewhere, says Amy Kessler.

Heineken, which acquired the UK business of Scottish & Newcastle in 2009, has announced that it has completed a longevity hedging and reinsurance transaction with Friends Life Limited, now part of insurer Aviva Group, transferring £2.4 billion of longevity risk.

Recent high levels of activity in the UK pension risk transfer market, featuring longevity swaps and longevity reinsurance transactions, are being driven by insurance companies drive to meet Solvency II requirements.

The Brazilian pension fund market faces growing longevity risk and the regulator is calling for insurers to create products to address this, which will result in new opportunities for the longevity swap and reinsurance providers to tap into a new geographic region.

Longevity is the biggest risk facing corporate pension schemes in the UK and Germany and more likely to cause deficits than low-interest rates, according to Fitch Ratings, which underscores the expected increase in demand for longevity risk transfer and reinsurance.