In an inevitable move, UK insurer Legal
& General (L&G) has entered the rapidly-growing longevity
insurance segment of the country’s flourishing defined benefit (DB)
pension scheme risk transfer market.
As one of the largest risk transfer market
players, longevity insurance is a segment L&G cannot afford to
ignore having in 2009 contributed £4.1bn ($6.6bn) out of total new
business of £7.7bn, according to actuarial consultancy Hymans
Robertson (HR).
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Often referred to as a do-it-yourself option
for companies wanting to eliminate risk that scheme members live
longer than expected, the first UK longevity insurance deal was
executed in May 2009.
The deal involved UK engineering company
Babcock International in association with Swiss bank Credit
Suisse.
Under the arrangement Babcock’s exposure is
capped via longevity swaps, whereby its DB scheme will receive
payments from Credit Suisse should the members and dependents
covered live beyond a pre-defined age.
Commenting on L&G’s entry into the
longevity insurance segment Simon Gadd, L&G’s MD for annuities,
said: “This move demonstrates our continued commitment as a market
leader to develop and grow the pension scheme de-risking market.
Longevity insurance is widely considered as a stepping stone for
migration to a fully insured buy-in/buy-out.”
According to HR, buy-ins totalled £2.8bn in
2009 while buy-outs totalled £900bn. L&G held a 22% share of
the buy-in/buy-out market in 2009, which was dominated by risk
transfer specialist Pension Insurance Corporation.
James Mullins, senior liability management
specialist at HR commented that based on the level of activity the
firm is observing longevity swaps could cover liabilities in excess
of £10bn in 2010.
This prediction is well on the way to being
realised with the late-February announcement by Abbey Life, a unit
of Deutsche Bank, that it had executed a £3bn longevity insurance
transaction for the BMW (UK) Operations Pension Scheme. This is the
largest UK longevity insurance transaction to date.
