Longevity reinsurance news

The longevity risk transfer market is forecast to boom in years to come, say experts, with as much as £100 billion of longevity risk transactions to come in the next two years, which could herald more involvement for the capital markets.

Longevity risk transfer pricing and the amount of capacity available in the longevity risk transfer market is being driven by the reinsurance market and its increasing willingness to support longevity swap type deals, according to Aon Hewitt.

Royal London, the largest mutual life insurance and pensions provider in the UK, has announced the completion of a longevity reinsurance transaction which saw it transfer approximately £1 billion of longevity risk to RGA International Reinsurance Company Ltd.

According to its annual report on the pension de-risking and risk transfer market, Towers Watson says that it expects deal sizes in the longevity swaps market will continue to grow larger and that new structures for longevity hedging will emerge.

The largest UK pension buy-in and bulk annuity purchase has been announced today, involving AkzoNobel’s ICI Pension Fund entering into annuity buy-in agreements with Legal & General and Prudential to cover £3.6 billion of liabilities.

The UK government announced changes to the pension regime which could result in significantly lower amounts of annuities being purchased as well as a reduction in longevity risks at pension schemes and life insurers.

Global reinsurance firms including Swiss Re and SCOR have participated in what is being dubbed the largest ever pension scheme longevity swap, a £5 billion transaction for UK insurance, life and pensions firm Aviva.

Aon Hewitt, the unit of insurance and reinsurance broker Aon which has a focus on retirement products, forecasts that £100 billion of reinsurance capacity will be available to support longevity risk transfer and longevity swaps over the next two years.

UK insurance and investment group Legal & General is partnering with Club Vita, an initiative of Hymans Robertson, the independent consultancy and actuarial firm with a focus on pension risk, on longevity risk analysis.

A new research effort will now get underway to investigate and develop a method for assessing the basis risk in longevity risk transactions, after Cass Business School and Hymans Robertson successfully won the bid for the research work.