Reinsurers have adjusted pricing to match the recent changes in UK mortality rates, after the market experienced pricing dislocation last year, according to insurance and reinsurance broker, Aon.
Longevity market pricing is now back on track after a period of dislocation when longevity reinsurers were slow to adjust pricing to reflect changes within the market. Senior Partner and Head of Aon Hewitt, Martin Bird, said; “This came to a head in mid-2016, when we advised schemes that were seeking to mitigate their longevity risk to look at re-pricing or even to defer their longevity transactions altogether.”
Schemes for transferring longevity risk last year needed to wait for reinsurers to recognise and implement the emerging data on mortality rates.
However, the market has now effectively readjusted and prices have been significantly reduced, so dislocation should no longer be an issue for entities seeking a longevity swap.
Bird, explained; “In the last quarter of 2016, reinsurance pricing levels for the UK pension risk transfer market showed that pension schemes which chose to delay longevity risk transfer or swap deals, were seeing price reductions of up to 2%.
“Similarly, during the first half of 2017, a similar pattern has emerged as the reinsurance market has continued to react to the latest data and changed its pricing accordingly.”
UK Office for National Statistics data shows mortality rates in England and Wales continue to be significantly higher than had been anticipated five years ago.
Tim Gordon, partner and head of Longevity at Aon Hewitt, said; “The debate over whether recent mortality experience is a blip or a genuine trend appears therefore to have been settled.
“This wider industry consensus forming around future mortality improvements is very welcome. The significant restoration of correct pricing in the longevity market compared with 12 months ago is also an extremely positive development.”
He added that the industry has both taken emerging national data into account and updated its thinking on the underlying drivers of future mortality improvement and the impact this has on pension scheme liabilities.
However, prospective longevity risk protection buyers are still cautioned to check to ensure pricing offers are fully up-to-date and competitive.
