longevity risk transfer

Mercer, the pensions, investments and employee benefits firm and Zurich the global insurance company have teamed up to launch a streamlined longevity hedging solution for small to mid size UK pension schemes with pensioner liabilities of £50m+.

While the recent completion of the £16 billion BT Pension Scheme longevity swap, a record sized transaction for the growing longevity swap and risk transfer market, showed the market’s appetite for this risk it may not be indicative of its future.

The largest longevity swap transaction ever seen has been announced this morning, with the UK’s BT Plc (telecommunications company) offloading a huge £16 billion of its longevity exposures through a longevity swap transaction.

Recent developments in the longevity risk transfer market have ‘shattered preconceptions’ that longevity swaps are only for big pension schemes, according to Aon Hewitt, the retirement product unit of insurance and reinsurance broker Aon.

The first-quarter of 2014 saw the highest volume of longevity swaps and pension risk transfers, as pension plans took advantage of the strong appetite for longevity risk and ample availability of longevity reinsurance capacity.

Canada’s insurance regulator, the Office of the Superintendent of Financial Institutions (OSFI), has issued an advisory note for administrators of defined benefit pension plans that are considering entering into longevity swap or insurance contracts.

The world’s pension and retirement systems continue to underestimate the scale of the longevity risk they face, as populations continue to grow and age, with estimates suggesting annuity and pension longevity exposures could reach $25 trillion by 2050.

Hannover Re was the reinsurance firm sitting behind the £1.6 billion pension buy-in we reported yesterday, between specialist insurer of defined benefit pension funds Pension Insurance Corporation (PIC) and oil company Total’s UK pension plan.

Specialist insurer of defined benefit pension funds Pension Insurance Corporation (PIC) has completed another large pension risk transfer, taking on £1.6 billion of pensioner liabilities including longevity risks, from oil company Total’s UK pension plan.

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.