Canadian longevity risk transfer market could hit $20bn

CANADA - The nascent Canadian longevity risk transfer market could hit $20bn by 2020, Swiss Re finds.

A new report, "Longevity risk and protection for Canada," said there has only been one publicly disclosed longevity re/insurance transaction in Canada, leaving huge potential for growth in the Canadian insurance market. The first longevity risk was transferred from Industrial Alliance to RGA in 2009, with $1.4bn of liabilities transferred.

Senior economist on Swiss Re's economic research and consulting team, Milka Kirova said Canadian pension funds were holding back form implementing longevity risk transactions because of cost, concerns over credit risk, the complexity of available products or a lack of suitable products.

The firm used information from a survey that was carried out by asset management company Aberdeen, that asked 100 Canadian pension funds about their plans around longevity planning.

Kirova said: "Sixty percent of the funds view buy outs as expensive, they are getting more familiar with longevity reinsurance but about 40% of the funds said that they were not inclined to use a derivative solution."

In Canada the estimated life expectancy at birth is expected to rise over 90 years by 2100 adding pressure on funding levels of pension funds, particularly in volatile market conditions, the report found.

The survey estimates the global pension market is worth about $20trn and there is potential for the longevity risk transfer market to grow between $185- $325bn in notional outstanding issuance by 2020.

Annual average growth rates were also estimated at 22-30% in total assets transferred, a figure that could potentially be higher if the longevity bond market takes off according to Swiss Re.

If Canada gets its global share of this projection, then the market for longevity risk solutions will be $10-20bn by 2020.