Reinsurers’ appetite for longevity risk grows

Global reinsurers’ appetite for pension fund longevity risk is increasing rapidly leading to an increasing number of deals being done that transfer risk into this sector, according to Aon Hewitt, the adviser on the most recent transaction.

The AstraZeneca Pension Fund Trustee has agreed a £2.5bn longevity swap with Deutsche Bank, hedging the longevity risk of around 10,000 of the fund’s current pensioners. The risk will ultimately be passed onto international reinsurers.

The deal represents the latest deal of this type. Pension funds are becoming increasingly aware of the scale of this risk but also some of the risk transfer techniques available to hedge it. Equally, reinsurers are becoming more comfortable taking it on.

Total UK pension liabilities hedged using these contracts have now been valued at over £23bn. Last week, Carillion secured a longevity swap with Deutsche Bank AG covering around 9,000 pensioners with liabilities of around £1bn.

“It was clear during the negotiations for this transaction that the capacity and appetite of the global reinsurance market to take on pension fund longevity risk is ever increasing,” said Matt Wilmington, partner at Aon Hewitt. “Together with Deutsche Bank we ran a competitive process including the established reinsurers as well as a number of new market entrants which has enabled the fund to transact at the best available terms.”

Linklaters advised the Trustee of the AstraZeneca Pension Fund on the deal.