Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Report suggests 1/4 of FTSE 100 companies could transfer pension longevity risks by 2012


A report released by consulting firm Hymans Robertson suggests that pension fund longevity risk transfer is growing fast and within the next two years will become a norm for large companies looking to derisk their pension fund strategy. To date, £6.3b of pension risk transfer deals have been struck in 2010 and given the current pipeline of deals they expect the 2010 total to reach £15b.

By the end of 2012, the report suggests that more than a quarter of UK FTSE 100 companies will have completed some sort of pension risk transfer transaction (either through buy-in deals or longevity swaps). This is part of a significantly larger trend of companies seeking to derisk themselves by switching investments into assets that closely match their liabilities.

The report suggests that market conditions are favourable for these deals right now which will make it very attractive for firms to replicate the recent RSA Insurance DIY buy-in transaction with Goldman Sachs. Conditions are also ripe for longevity swaps due to the status of the government bond market which means the potential for financial impact to a pension fund is minimised.

We expect to see this market gaining in popularity which will also increase scrutiny and regulation. We also expect a surge in innovation as new deal structures are devised to make hedging pension longevity risk easier. The other trend we foresee will be more reinsurers getting involved in this market as providers and arrangers of longevity hedging mechanisms.

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