Longevity swap market is ‘back in business’ – Aon

Written by Talya Misiri

The longevity swap market is “back in business” due to improved reinsurance pricing and increasing access, Aon has said.

Aon has highlighted that following unfavourable pricing 18 months ago, current rates have led to a revived focus on longevity swaps. These are particularly appealing to schemes with investment strategies that do not allow for bulk annuity deals, therefore resulting in an increased interest in the swap structure to control longevity risk.

Thinking about the longer term de-risking journey of the scheme is a “critical element” of the commercial discussion that scheme trustees and sponsors should have, Aon risk settlement group principal consultant Tom Scott has emphasised.

Following the completion of the recent longevity swap involving Zurich of more than £2bn of the pensioner liabilities for the National Grid Electricity Group of the Electricity Supply Pension Scheme, of which Aon acted as a transaction adviser, the firm is confident that the market will continue to secure these deals.

Scott commented that this latest deal illustrates the range of longevity swap structures available to meet schemes’ specific needs.

Aon senior partner and head of the risk settlement group Martin Bird added: “For those schemes with relatively well de-risked investment portfolios, bulk annuity pricing also remains very favorable, reflecting both attractive longevity reinsurance capacity and insurers continuing to source attractively priced long-dated assets that are capital friendly in the Solvency II regulatory environment.

"Overall, the risk settlement market remains buoyant and, as we approach the mid-way point in 2018, we remain confident that we will see over £30bn of deals executed over the year,” he concluded.

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