Longevity swaps expected in 2022, but capacity may be more limited: Mercer

Longevity swaps expected in 2022, but capacity may be more limited: Mercer

There have been ₤ 12 billion worth of durability swaps in the UK pension threat transfer market in 2021, with overall risk transfer including bulk annuity buy-in and out offers anticipated to reach ₤ 40 billion for the year.Mercer expects that 2022 will eclipse this figure, forecasting some ₤ 60 billion of UK pension threat transfer for next year, with longevity swaps anticipated to make up a part of that market activity.
The expert warns that insurance coverage and reinsurance capability to support these big pension de-risking offers may not be as abundant, offered the expected higher levels of market activity.
Which might push some pensions to look to alternative sources of capacity to underpin their pension risk transfer and durability threat transfer arrangements, which might provide a chance for the life focused insurance-linked securities (ILS) funds to get more associated with this market segment.
The pension threat transfer and longevity swap market has ended up being dominated by significant international reinsurance gamers.
However the ILS market continues to have a cravings for durability risk in some quarters, particularly where arrangements are structured in swap form and index-based durability danger transfer arrangements have constantly been particularly appealing for particular capital market financiers.
Alternative threat transfer innovation continues to move the pension risk transfer space forwards, with segregated or secured cell intermediated longevity swaps one location where ILS market plumbing is being used to help bring the recipient of the protection more detailed to the sources of reinsurance capital they need to transact with.
Mercer expects alternative plans such as this to increasingly feature.
But with 2022 anticipated to be a significant year, capacity might end up being stretched which has implications for those looking for pension and longevity danger transfer and could drive some to look at alternative sources of reinsurance capacity.
Andrew Ward, UK Head of DB Risk, Mercer commented, “We predict 2022 to be the busiest year on record with more jumbo buy-in and buy-out offers and longevity swaps anticipated. With need likely to extend suppliers capability for offering proposals and executing transactions, being well-prepared with a clear understanding of deal requirements is crucial.”
Showing on 2021s pension danger transfer activity, Ward stated, “The big winners have actually been those well-prepared schemes that came to market early with clear pricing targets and condensed broking processes. Despite the continued challenges for lots of from the developing COVID-19 pandemic, the main chauffeur stays to acquire protection against uncontrolled threat.”
Concluding, “Given the enhancements in funding levels this year and increased regulative focus on long-lasting financing objectives, more plans will be weighing up a diverse and growing series of threat transfer and alternative options for fortifying member security and moving towards their objective. The beginning point needs to be a clear understanding of goals and the variety of options so that trustees and sponsors can identify the best path and then follow it with confidence.”
Check out many historical durability swap and reinsurance transactions in our Longevity Risk Transfer Deal Directory.

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