Consultancy giant WTW is aiming to open the longevity swap market to defined benefit (DB) pension schemes between £100m and £1bn with a new streamlined service.
Longevity reinsurance transactions have traditionally been carried only by the largest pension schemes in the country, with billions of pounds of liabilities secured in each deal.
Recent longevity ‘swaps’ have involved the Lloyds, BBC, British Airways and BT pension schemes, all of which were extending previous reinsurance deals.
“We are seeing increased interest from schemes that want to access this market but have been held back by the perceived complexity and cost.”
Rhys Mellens, WTW
WTW said its new service, known as Longevity Stream, aimed to make hedging life expectancy risks “more accessible, efficient and cost-effective”.
Data from the Continuous Mortality Investigation indicates improving mortality and life expectancy, raising liabilities for DB schemes – even as private sector schemes are enjoying near-record aggregate funding surpluses.
WTW said Longevity Stream was designed to help smaller pension schemes access longevity reinsurance while mitigating implementation and ongoing management costs. The consultancy group said the service was also supportive of run-on strategies and transitioning to buyout.
Zurich has been appointed as reinsurance intermediary, while CMS has developed pre-negotiated contracts for deals. The service operates under a fixed-fee arrangement.
Rhys Mellens, senior director at WTW, said: “Demand for longevity swaps has grown in recent years, with schemes increasingly looking to manage longevity risk, either as part of a run-on strategy or to lock down a key driver of future buy-in pricing.
“We are seeing increased interest from schemes that want to access this market but have been held back by the perceived complexity and cost.”
