Longevity hedging news

The mortality expectations of Canadian pension plans are set to be amended after a study by the Office of the Chief Actuary (OCA) showed that mortality rates are on the decline, leading to increases in life expectancy and longevity risk assumptions.

ScottishPower UK PLC, a subsidiary of Iberdrola SA, has offloaded £2 billion of longevity risks to Abbey Life Assurance Company Limited (a subsidiary of Deutsche Bank) in a longevity swap transaction.

Prudential Retirement, a division of Prudential Financial Inc., has completed its fifth longevity reinsurance transaction with Rothesay Life. The latest deal sees Prudential covering pension liabilities amounting to $450m for the insurer.

Pension fund sponsors of longevity swaps can as much as halve the transaction costs by establishing their own special purpose insurance or captive vehicle, or using a service provider, in order to more directly access sources of longevity reinsurance capital.

The UK’s Merchant Navy Officers Pension Fund (MNOPF) has completed a direct longevity hedge or swap transaction with £1.5 billion of its members longevity risk ultimately being reinsured by life and longevity focused reinsurance firm Pacific Life Re.

The International Association of Insurance Supervisors (IAIS) estimates that for every year that longevity risk is underestimated by risk holders, such as pension funds, insurers or reinsurers, the liability to them could be increasing by as much as $1 trillion.

The longevity swap, longevity reinsurance and pension risk transfer market continues to grow, with £30 billion of pension risk transfers undertaken year-to-date with almost £22 billion of these consisting of longevity swap deals, according to Aon Hewitt.

Punter Southall, the pension and actuarial consultancy, has hired an experienced executive with significant longevity swap and buyout expertise to head up the firm’s growing pension de-risking and risk transfer efforts.

A research paper looking at mortality rates in the UK, concludes that there could be errors in the current data provided by the Office for National Statistics (ONS) and suggests that this could lead to basis risk within longevity hedges, swaps or reinsurance transactions.

The pension scheme of UK closed life and pension fund consolidator Phoenix Group, has entered into a longevity swap transaction with its own insurer Phoenix Life Limited, simultaneously reinsuring the longevity risk on a quota share basis.