Towers Watson has introduced a new service that enables pension schemes to have direct access to the reinsurance market, which would hedge longevity risk for their Defined Benefit liabilities.
Towers Watson Longevity Direct, which is based in Guernsey, enables pension schemes to own a ready-made insurance cell.
This cell can write insurance and reinsurance contracts for longevity swap transactions.
This structure is expected to reduce the cost of hedging longevity risk for pension schemes as it would eliminate the need for an intermediary insurer to write the transaction.
It also implies that bigger transactions can be quickly completed while the best reinsurance pricing can be accessed.
Towers Watson UK Head of Risk Solutions Keith Ashton said: "Access to the reinsurance market has become increasingly expensive and inefficient in recent years, but the appetite from Defined Benefit pension schemes to hedge their longevity risk has been growing strongly.
"Traditional intermediary costs can be several times higher than accessing the market directly and the aim of Longevity Direct is to provide more affordable and efficient access to the market.
"This structure also means the pension scheme can take advantage of the best possible reinsurer pricing, rather than having to compromise on pricing due to the intermediary’s exposure limits."
As per the Towers Watson pensions-derisking transactions, longevity swaps transactions have seen a consistent increase in volume as well as value over the recent years.
This year, £32bn worth of transactions were completed, which is double than the 2013 total, largely because of the BT Pension Scheme’s £16bn transaction in June, which was claimed to be the largest deal of its kind.
Image: Towers Watson Longevity Direct enables pension schemes to own a ready-made insurance cell. Photo: courtesy of Stuart Miles/ FreeDigitalPhotos.net.