Market growing for longevity swaps for deferred members

The consultancy said four of the ten reinsurers providing longevity swaps were now prepared to cover the risk of non-pensioner members, up to a certain level.

Mercer partner Suthan Rajagopalan said: "Longevity swaps have typically been pensioner only, but, of the ten reinsurers, there are probably four that will take up to 50% non-pensioners.

"Reinsurers are looking to differentiate themselves. We're up to nearly half the market actively saying ‘we could do this if we want'. It's yet to be seen if the pricing is attractive enough for trustees, but certainly that would be part of exercises going forward."

So far this year, £12.6bn of longevity swaps have been concluded across four deals, but Mercer said a number of other potential transactions were in the market and could bring the annual total to at least £15bn.

These include the £10bn deal for three Lloyds Banking Group schemes, as well as a £1bn transaction with the Willis Pension Scheme and a £1.4bn swap for UBS.

This is despite the ongoing coronavirus pandemic and its unknown effects on overall mortality and long-term health. Many market commentators, including Mercer, believe the impact of Covid-19 on pension schemes will largely be less pronounced than in the general population due to its disproportionate impact on different socioeconomic statuses. 

Rajagopalan said: "Trustees and sponsors are demonstrating by doing these transactions that it still makes strategic sense to hedge your longevity risk in spite of Covid-19.

"Every death is clearly tragic, but the financial impact on pension schemes has been less pronounced because of where Covid-19 has been most prevalently seen. It has been in the lower wealth categories generally, and higher age groups. Both factors point to lower liability impact and therefore longevity risk is on the list to manage down in trustees' journey plans."

Nevertheless, wider government and societal efforts could have the opposing effect, increasing general healthiness and life expectancy. For example, increased hand-washing and use of masks, as well as heightened awareness of the impact of obesity, could cause a general shift to more healthier and cleaner lifestyles.

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• Topics
• Risk Reduction
• Mercer
• Suthan Rajagopalan
• Longevity Risk
• Longevity reinsurance
• longevity swap
• Longevity swaps