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Longevity risk transfer activity to grow in the UK and beyond: Prudential’s Kessler

14th November 2017 - Author: Luke Gallin

The longevity reinsurance and risk transfer market in the UK is expected to be active in 2018 after a period of uncertainty following the Brexit vote, and markets around the world are expected to adopt the UK’s de-risking techniques, and take advantage of the efficient cost of transferring longevity risks, according to Amy Kessler, Head of Longevity Risk Transfer, Prudential Financial.

Longevity imageMarket volumes for longevity risk transfer activity has increased in 2017 after a decline last year in light of the Brexit vote, approaching levels not seen since 2015, according to Kessler.

Despite the negative impact on the longevity reinsurance and risk transfer markets, as a result of the UK’s vote to leave the EU, early indications is that 2018 volumes will be robust, says Kessler.

One force driving the expected increase in de-risking activity in the UK in 2018, is the fact that 25% of the region’s pensions are more than 100% funded, with the average plan’s funded status having recovered significantly this year.

“In 2017 and beyond, we expect more growth, more innovation and the adoption of U.K. de-risking techniques in other countries,” said Kessler.

Longevity risk transfer techniques and practices are becoming more globally acceptable, and Kessler explains that many shareholders and key stakeholders in companies across the world, in various industries, now expect to see some efforts to hedge longevity risks.

Supporting increased longevity risk transfer activity in both the UK and elsewhere around the world in 2018, is the historically low risk transfer prices, which are a result of lower-than-expected longevity improvements and the subsequent reduced cost of transferring longevity risks.

“Projection models used for pricing assume that lower levels of improvements will persist in the near term. Because of this, the present environment represents an opportunity for pensions to transfer longevity risk using these assumptions that are more favourable than in the past. Longevity improvement projection models in use in the market are not a crystal ball: There remains a great deal of uncertainty with regard to future longevity improvements,” explains Kessler.

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