Aon Hewitt has said that while big deals have so far dominated the longevity swap market, the days of smaller pension schemes making use of the approach are not far off.
The BT Pension Scheme longevity insurance arrangements, worth £16 billion and announced last week, were the largest yet completed. The first longevity swap, for the Babcock scheme, was announced in 2009 and since then 19 deals have been completed, the smallest of which, for the Bentley Motors scheme, was worth
£400 million.
Martin Bird, senior partner and head of the Risk Settlement at Aon Hewitt, said:
“The BT pension scheme deal was an exciting one for those involved in the longevity swap market, increasing by £11 billion the previous largest deal. But it may not be indicative of where the market is going next.
“It certainly demonstrated just how much capacity exists within the reinsurance market but that appetite is now trickling down and into the territory of smaller sized schemes, most of which are seeking to derisk and increase stability. It’s not yet a market with a standardised approach but it’s definitely more accessible. In any case, if a longevity swap becomes too standardised it may also become less effective a hedge.”
Martin Bird continued:
“I believe we could be seeing deals of around £50 million as we get into the final quarter of this year, a movement led by smaller schemes tapping into the funds available in the market and capitalising on the knowledge gained from the big deals. It’s early days for the core market participants to offer real competitive pricing tension – but the capacity is there.”
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