Analysis of reinsurance pricing levels in the fourth quarter of 2016 demonstrated that schemes which chose to delay deals have typically seen price reductions of up to 2%, equivalent to a £20 million saving on a typical £1 billion deal.
Tim Gordon, partner and head of Longevity in Aon Hewitt’s Risk Settlement Group, said:
“Over the past six years, male mortality rates improved by less than 1% per year compared with over 3% per year during the previous decade. This reduces projected future improvement, and potentially reduces liabilities by 3-4% compared with the view of only a couple of years ago.
Tim Gordon continued: “We believe it is important to continue taking a measured approach when incorporating the latest mortality data, not least to avoid unnecessary volatility in funding and accounting valuations. However, this change is significant as it indicates that the expected future reduction in mortality improvements has taken place earlier than expected. This has material implications for longevity swap and bulk annuity pricing - especially in today’s hyper low-discount rate environment.”
Martin Bird, senior partner and head of Risk Settlement at Aon Hewitt said: “In the second half of 2016 we were concerned that some reinsurers were operating with out-of-date pricing. We worked hard to address the potential price dislocation in the longevity market and we are optimistic that - with mortality data now available right up to the end of 2016 - insurers and reinsurers will be able to update their pricing to be consistent with current improvement trends.”
Martin Bird continued: “We will continue to do everything we can to ensure a functioning and competitive longevity market because we firmly believe this is in the interests of pension schemes, insurers and reinsurers alike.”
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