longevity risk

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.

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.

The Joint Forum, a forum established to deal with issues common to the banking, securities and insurance sectors, has published its final report and recommendations to policymakers and supervisors on longevity risk transfer markets.

Another large UK longevity swap transaction has completed, the third such deal in just two weeks, this time involving Legal & General entering into agreements with two of BAE Systems pension funds and passing much of the ultimate longevity risk to global reinsurance firms.

The AstraZeneca Pension Fund Trustee has entered into a longevity swap covering £2.5 billion of liabilities and approximately 10,000 of its pensioners with investment bank Deutsche Bank, passing the ultimate risk onto reinsurance firms.

A £1 billion longevity swap transaction has been completed by Deutsche Bank AG for five of the Carillion plc support services groups defined benefit pension funds, with the risk ultimately being passed onto reinsurers.

The unique structure utilised within the recently completed Aegon longevity risk transfer transaction has been developed in the hope of bringing some standardisation, transparency and more deal flexibility to the longevity hedging market.

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.