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Favourable conditions suggest record-breaking year ahead for longevity risk transfer: Kessler, Prudential

27th March 2019 - Author: Luke Gallin

Pension funds are continuing to take advantage of favourable longevity risk transfer conditions, and it’s expected that 2019 will be another record breaking year for the market, according to Amy Kessler, Head of the Longevity Risk Transfer, Prudential Financial Inc. of the U.S.

amy-kessler-prudentialPension funds across the UK, U.S. and Canada embarked on more longevity risk transfer transactions in 2018 than ever before, and with little sign that demand for longevity risk transfer and reinsurance solutions is slowing, the market is expected to reach new heights in the coming months.

Speaking with Reinsurance News, Kessler explained that demand for longevity risk transfer is at its highest when pension funds are de-risking because pension buy-ins buy-outs and longevity swaps usually require longevity reinsurance.

“In 2018 and the beginning of 2019, the market for pension de-risking is growing at an unprecedented pace because pension funds in the U.S., UK and Canada are simultaneously at the highest funded status they’ve experienced in ten years.

“In addition, these markets have attracted new entrants in pension insurance and reinsurance, so there is ample insurer capacity, vibrant price competition, and attractive buy-in and buy-out pricing.

“Furthermore, seven years of lower than expected longevity improvements mean the lowest liability pricing from insurers and reinsurers in a decade. So, pension funds that can afford to de-risk are doing so now with the knowledge that such favourable market conditions are not likely to last forever,” said Kessler.

Ultimately, it’s not clear how long favourable market conditions will last, but should the markets hold, 2019 is anticipated to be another record breaking year for longevity risk transactions.

“The volume of bids we are seeing in these first few months of 2019 support this prediction and I expect the robust market to last as long as these favourable market conditions,” explained Kessler.

The longevity risk transfer marketplace has been in development for the last decade or so, and remains a vibrant opportunity.

In its infancy, one or two UK transactions came to market each year, but increased demand from both sides of the Atlantic has seen a substantial rise in annual deal volume, to more than 30 transactions per year with activity in the UK, U.S., Canada, France and the Netherlands.

“The growth and globalization of this market will continue because longevity risk transfer is fundamentally important to the provision of annuities world-wide.  It helps insurers balance their mortality and longevity exposures and gives pension funds the hedge they need to manage longevity risk and secure the benefits due to members.

“From Prudential’s standpoint, we are proud to be a pioneer and a leader in such an important market and will continue to innovate to meet the needs of our clients around the world,” said Kessler.

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