Towers Watson launches longevity risk access

Professional services company Towers Watson has launched a service enabling pension schemes to gain direct access to the reinsurance market to hedge longevity risk.

Based in Guernsey, Towers Watson Longevity Direct allows pension schemes to own a ready-made insurance cell that can write insurance and reinsurance contracts for longevity swap transactions.

Towers Watson said the structure significantly reduces the cost of hedging longevity risk for pension schemes by removing the need for an intermediary insurer to write the transaction. It also means bigger transactions can be completed and the best reinsurance pricing can be accessed.

Keith Ashton, UK head of risk solutions at Towers Watson, said: “Access to the reinsurance market has become increasingly expensive and inefficient in recent years, but the appetite from defined benefit pension schemes to hedge their longevity risk has been growing strongly.

“Traditional intermediary costs can be several times higher than accessing the market directly and the aim of Longevity Direct is to provide more affordable and efficient access to the market.

“This structure also means the pension scheme can take advantage of the best possible reinsurer pricing, rather than having to compromise on pricing due to the intermediary’s exposure limits. We also find that pension scheme and reinsurer interests are typically very aligned; a direct agreement can be much less complex than the longevity swaps we have seen in the past.

“For these reasons we’re confident that the opportunity to access the reinsurance market directly is one that will appeal to a range of pension schemes who have previously held back. We already have a number of our clients which are progressing longevity hedging through this structure.”