Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Longevity swaps to go international


Just the other day we wrote about the news that the longevity risk transfer market was showing a growing interest in the Netherlands as the next likely market to see a longevity swap completed. To date only the UK has seen a deal where a reinsurer (or other counterparty) takes on the risk of longevity (of pensioners living longer) associated with a portfolio of pension risk.

German reinsurance company Hannover Re have stated in their annual report, which was published a few days ago, that they expect to see the first international longevity swap deal completed in the first half of 2011. They are seeking to expand their role in the longevity risk transfer market and said that during the last half of 2010 they received requests from international pension funds in Denmark, the Netherlands, Canada and South Africa asking them if they could implement similar solutions to those used in the UK. Hannover Re say they are “confident of closing the first transaction of this type in the first half of 2011.”

The outlook for the longevity market does look promising given the amount of talk about increasing life expectancies and the burden that puts on any pension plan. Every pension fund faces some longevity risk, it is unavoidable, and they will need access to mechanisms which allow them to hedge or neutralise those risks. At the moment, longevity swaps looks like one of the most effective ways for this to be achieved.

Hannover Re are positive about the prospects for the market, saying “The currently emerging, increasingly international dimension of demand for such covers promises outstanding potential for the future.”

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