Pensions - Articles - Longevity swap market is back in business says Aon


Aon has said the longevity swap with Zurich covering more than £2 billion of the pensioner liabilities of the National Grid Electricity Group of the Electricity Supply Pension Scheme (ESPS) - on which Aon was the lead transaction adviser - is a clear signal that the longevity swap market is back in business, with improved reinsurance pricing and a range of options for accessing this.

 Tom Scott, principal consultant in Aon’s Risk Settlement Group, said: “This latest transaction illustrates that a range of longevity swap structures is available, giving scheme trustees and sponsors the opportunity to select an approach which meets their specific needs.

 "Longevity swaps play an important role in a scheme's long-term de-risking journey. Accordingly, thinking about this longer term perspective is a critical element of the commercial discussion which scheme trustees and sponsors should ensure is addressed at the outset. A key feature of National Grid’s transaction was the constructive dialogue with both Zurich and Canada Life Reinsurance which enabled agreement of various contractual provisions to future-proof the contract. For example, it enabled us to set out a framework under which future annuitisation can take place, should this become an objective for the scheme.”

 Martin Bird, senior partner and head of the Risk Settlement Group at Aon, said: “Now that we have seen pricing settle back after it became dislocated 18 months ago, we are seeing a revived focus on the use of longevity swaps. In particular, for schemes with investment strategies which do not permit the use of bulk annuities, the swap structure is an effective way to control longevity risk.

 "For those schemes with relatively well de-risked investment portfolios, bulk annuity pricing also remains very favorable, reflecting both attractive longevity reinsurance capacity and insurers continuing to source attractively priced long-dated assets that are capital friendly in the Solvency II regulatory environment.

 "Overall, the risk settlement market remains buoyant and, as we approach the mid-way point in 2018, we remain confident that we will see over £30 billion of deals executed over the year."
   

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