“It is very telling that five insurance companies - the experts in managing risk - have now chosen to transfer a large proportion of their pension scheme longevity risk to third parties. Recent examples include RSA Insurance, LV=, Aviva, PGL and now Axa.
“It is also interesting that the three most recent of these transactions involved the pension scheme passing their longevity risk directly onto reinsurance companies, rather than using a third party intermediary. We believe this trend will continue.”
“The market for longevity swaps represents excellent value at the moment, and this deal is illustrative of that. This is being driven by high reinsurer appetite for UK longevity risk. It’s therefore highly likely we’ll see an increasing number of Defined Benefit (DB) schemes go down this route, taking them a step closer to securing benefits promised to scheme members. There are many different structural solutions available to schemes and so it’s critical to consider all options and obtain impartial advice.”
In just 6 years, since the first pension scheme longevity swap in 2009 (Babcock):
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30 pension schemes have now completed longevity swaps (see this report, which covers all of the previous 29 deals
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Longevity swaps have now covered £53.4 billion of pension scheme liabilities.
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2014 was a record breaking year by some distance, with 5 longevity swaps covering £25.4 billion of pension scheme liabilities (Aviva, BT, PGL, MONPF and ScottishPower).
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Hymans Robertson had significant involvement on 3 of the 2014 longevity swaps (Aviva – lead adviser, BT – adviser to PICA the reinsurer and ScottishPower, actuarial adviser to the trustee).
“Research we undertook in conjunction with the NAPF last year illustrates the extent of uncertainty trustees face with regards to improvements in longevity. A key finding was that DB pensioners experience different trends in longevity to the population as a whole. Added to that, the pace of longevity increases varies significantly for different groups of members within DB schemes. We now have a much greater understanding of this thanks to this research. In just the same way that our Club Vita analysis of current day longevity is invaluable in our efforts to help trustees understand and interrogate the pricing of longevity swaps, so this latest research will help inform further pricing assessments.”
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