ILS Intelligence
BREATHING LIFE INTO T
As life expectancies around the globe continue to rise, pension funds are seeking to further de-risk their books. This creates opportunities for reinsurers looking to diversify. Intelligent Insurer investigates.
he ageing population has become one of the defining issues of our time. Medical advances, along with rising living standards, are allowing people to live longer, healthier and more enriched
lives. A report published in March this year by the UK Office of National Statistics predicted that one in three babies born in 2012 in the UK will live to be 100 years old.
On one hand this demonstrates the significant progress that medical
science is making, along with other general improvements to the quality of life for a large percentage of the global population. But on the other, it means that urgent steps are required in order to deal with a population that will live for much longer than ever before.
For pension funds, this issue is particularly acute. As pension fund
members live longer, the funds are being forced to find ways to mitigate the inherent longevity risk. This has led to increased interest in the opportunities that longevity swaps offer to pension funds to shift that risk on to a third party.
The last year has been a particularly busy time for these transactions,
particularly in the UK, says James Mullins, head of risk transfer solutions at consultancy Hymans Robertson.
“There was significant activity in the second half of 2011, including
a flurry of large deals involving several UK household names,” he says. “ITV did a large transaction with Credit Suisse, which covered
£1.7 billion of its liability. In the fourth quarter of 2011 Rolls Royce did a £3 billion deal with Deutsche Bank, and British Airways did another deal with Goldman Sachs and its insurance vehicle. Pilkington also did a £1 billion deal with Legal & General. I think that there is much more to come in 2012 and beyond. There is a lot of interest in this market.”
This activity has been driven by new solvency regulations which force
pension funds to mitigate the risks they face. At the moment, longevity risk is a particular focus for this mitigation, says Niklaus Hilti, director and head of insurance-linked securities at Credit Suisse.
48 | INTELLIGENT INSURER | Summer 2012
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