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Aon confident of resurgent longevity swap market

18th May 2018 - Author: Charlie Wood

Following their role as lead transaction advisor for Zurich’s recent longevity swap, covering more than £2 billion of the pensioner liabilities of the National Grid Electricity Group of the Electricity Supply Pension Scheme (ESPS), Aon believes that the longevity swap market is back in business.

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The transaction, which we covered earlier this week, is Zurich’s largest ever longevity swap arrangement and will protect the National Grid against the risk of around 6,000 pensioners and future dependent members living longer than expected.

Principal Consultant in Aon’s Risk Settlement Group, Tom Scott said, “This latest transaction illustrates that a range of longevity swap structures is available, giving scheme trustees and sponsors the opportunity to select an approach which meets their specific needs. Longevity swaps play an important role in a scheme’s long-term de-risking journey.”

He added, “Accordingly, thinking about this longer term perspective is a critical element of the commercial discussion which scheme trustees and sponsors should ensure is addressed at the outset. A key feature of National Grid’s transaction was the constructive dialogue with both Zurich and Canada Life Reinsurance which enabled agreement of various contractual provisions to future-proof the contract.”

Senior Partner and head of the Risk Settlement Group at Aon, Martin Bird said, “Now that we have seen pricing settle back after it became dislocated 18 months ago, we are seeing a revived focus on the use of longevity swaps. In particular, for schemes with investment strategies which do not permit the use of bulk annuities, the swap structure is an effective way to control longevity risk. Overall, the risk settlement market remains buoyant and, as we approach the mid-way point in 2018, we remain confident that we will see over £30 billion of deals executed over the year.”

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