Longevity swaps: on the path to the endgame | Insight Investment

As pension schemes near their endgame targets, longevity risk remains the largest unhedged risk for many. As the cost of hedging this risk has continued to fall, now may be an opportune time to implement a longevity hedge – a cost-effective way to manage longevity risk and reduce risk associated with pursuing a buy-out.

• Longevity swaps are increasingly attractive, with costs reducing due both to falling life expectancy projections and strong competition in the longevity reinsurance market.
  
  
• New innovations mean longevity swaps are even more appealing: reinsurers are increasingly willing to take on non-pensioner as well as pensioner risk, as well as to accept a wider range of collateral assets as eligible collateral.
  
  
• Having a longevity swap in place can be a positive for schemes contemplating a future buy-out, as it can reduce or remove exposure to changes in an insurer’s view of life expectancy, supporting a straightforward transfer of risk at the point of buy-out.