Longevity swap market could hit £20bn in 2010

Hewitt Associates global risk services team senior consultant Matt Wilmington said people were increasingly comparing the value of traditional buy-in and buyout products with DIY options combining longevity swaps with other liability-driven investment strategies.

He said the resultant demand for longevity swaps would mean the market would grow to between £10bn and £20bn this year.

Wilmington explained: "Some people will find the price of doing a longevity swap plus some liability-driven investment will actually be more attractive than just going to a one-stop shop insurer and picking up a buy-in or buyout".

Hymans Robertson senior liability management specialist James Mullins also believed scheme demand for longevity swaps would increase substantially - saying there would be in excess of £6bn of scheme liabilities covered in this way in 2010. He explained a Hymans Robertson poll of 100 schemes found 48% would consider transferring longevity risk to a provider within the next five years.

Mullins added: "Many of these schemes are already investigating this option." This comes after PP exclusively revealed UBS Investment Bank is to enter the longevity swap market following the hire of a four-strong pensions team (PP Online, January 20).

It is understood UBS will launch a longevity swap product as soon as possible after the team, which previously worked at Paternoster, joins this week - and has already done much of the preparatory work for the launch.

This month, Deutsche Bank also confirmed it would be entering the longevity swap market. Legal & General said it is still investigating entering the longevity swap market in the first quarter of the year - deliberations revealed by this magazine last year (PP, November 5, 2009). Currently, three providers - Credit Suisse, Rothesay Life and Swiss Re - are known to have completed longevity swap deals.

Pension Corporation, JPMorgan and Lucida are among the providers also understood to be quoting in the marketplace.

SCHEME DEALS COMPLETED

So far, three schemes have completed longevity swaps:

Babcock International Group - Completed longevity swaps for three of its pension scheme with Credit Suisse covering liabilities of around £1.2bn (PP Online, May 12, 2009).

RSA Insurance Group - Completed longevity swaps for two of its pension schemes with Rothesay Life covering liabilities of around £1.9bn (PP Online, July 14, 2009).

The Royal County of Berkshire Pension Fund - Completed longevity
swap deal with Swiss Re covering liabilities of around £1bn (PP Online, December 15, 2009).

Source: Hymans Robertson