longevity risk

The longevity risk transfer market, of longevity swap transactions and other reinsurance arrangements that hedge or transfer longevity risk, is particularly busy right now because of impending Solvency II regulation and the resulting capital requirements.

The RAC (2003) Pension Scheme has entered into a longevity swap transaction which sees $900 million (£600m) of its longevity exposure transferred to French reinsurance firm SCOR SE, removing one-quarter of the pension schemes longevity risk.

German reinsurance firm Hannover Re has entered into a longevity reinsurance transaction with Pension Insurance Corporation (PIC) simultaneously with the completion of the largest ever full pension insurance buyout between PIC and the Philips UK Pension Fund.

The Bank of England is monitoring the trend of UK pension fund or insurer longevity risk and liabilities going offshore through reinsurance transactions, such as longevity swaps, as non-EU re/insurers can hold less capital against longevity risk, according to a report from Bloomberg.

Demand from life insurance and reinsurance firms will drive continued growth and also global expansion of the market for pension longevity risk transfer and swaps, according to a report from Prudential Financial, Inc.

The establishment of a captive insurance entity for longevity swap transactions in an offshore domicile presents significant cost reductions and a beneficial operating environment for market participants, according to industry experts.

Financial, actuarial and business consultancy with a specialist focus on pensions, investment and insurance, Lane Clark & Peacock LLP (LCP), has announced the appointment of Murray Blake within its pension de-risking practice.

A lack of manpower and resources for pricing longevity risks in the global reinsurance market is resulting in pinch points at times, making timing especially important for pension funds looking to hedge their longevity exposure, according to Aon Hewitt.

Club Vita LLP, an initiative launched in 2008 by Hymans Robertson LLP to help pension plans better measure and manage their longevity, is expanding into Canada as longevity exposure has become the biggest unmanaged threat to defined benefit (DB) pension plans in the country.

Aon Hewitt has urged pension schemes and insurance companies to interpret a new set of mortality data for the UK with caution and to remain focused on long-term trends associated with longevity risks when making assumptions about the need for risk transfer.