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Towers Watson predicts increase in longevity risk hedging


Towers Watson, the global professional services company, has published its five predictions for the pension market in 2011. Their fourth prediction is for an increase in longevity risk hedging among pension schemes and they state that improved access to tools which allow pension schemes to evaluate their longevity risk exposure should enable more schemes to offload their risks.

Their five predictions are available to read here. The text of their prediction on longevity hedging is copied below:

4. De-risking – monitoring and opportunity
When it comes to transferring risk to a third party, 2011 could see a pick up in the number of deals where pension schemes look to hedge some of their longevity risk. Other schemes will want to invest in annuities as part of a longer term aspiration to buy out their obligations. Mark Duke said: “Pension schemes now have access to tools that enable them to measure their longevity exposure as one of the many risks they face. This makes it much easier to work out how much risk they want to transfer and the price at which that transfer is good value for money. Longevity hedging and annuity purchase triggers have to be set in the same way of any other decision to de-risk the pension fund’s assets and hedge its liabilities. 2011 will be the year when many pension schemes put the governance structures, data preparation and monitoring in place that allow ‘here today, gone tomorrow’ opportunities to be seized.”

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