LONDON 10 July 2014 – Aon Hewitt, the global talent, retirement and health solutions business of Aon plc (NYSE:AON), has said that while big deals have so far dominated the longevity swap market, the days of smaller pension schemes making use of the approach are not far off.

The BT Pension Scheme longevity insurance arrangements, worth £16 billion and announced last week, were the largest yet completed.  The first longevity swap, for the Babcock scheme, was announced in 2009 and since then 19 deals have been completed, the smallest of which, for the Bentley Motors scheme, was worth
£400 million.

Martin Bird, senior partner and head of the Risk Settlement at Aon Hewitt, said:
“The BT pension scheme deal was an exciting one for those involved in the longevity swap market, increasing by £11 billion the previous largest deal. But it may not be indicative of where the market is going next.

“It certainly demonstrated just how much capacity exists within the reinsurance market but that appetite is now trickling down and into the territory of smaller sized schemes, most of which are seeking to derisk and increase stability. It’s not yet a market with a standardised approach but it’s definitely more accessible. In any case, if a longevity swap becomes too standardised it may also become less effective a hedge.”

Martin Bird continued:
“I believe we could be seeing deals of around £50 million as we get into the final quarter of this year, a movement led by smaller schemes tapping into the funds available in the market and capitalising on the knowledge gained from the big deals. It’s early days for the core market participants to offer real competitive pricing tension – but the capacity is there.”

Media Contact: 
Colin Mayes                                       Marina Jane Sanchez
Aon Hewitt                                         Capital MSL
01372 733689                                    020 3219 8811
colin.mayes@aonhewitt.com               marina.jane-sanchez@capitalmsl.com
 

Notes to editors
 

What is a longevity swap?

A longevity swap is a mechanism that allows a pension scheme to offload the risk of its members living longer than expected (longevity risk) to a third party, usually an insurance/reinsurance provider or an investment bank.

Under the arrangement of a longevity swap, a pension scheme commits to making regular payments to a third party based on agreed expected mortality rates. In return, that party undertakes to service the payments to scheme members based on actual mortality rates. The structure of longevity swaps is similar to that of interest and inflation swaps.

About Aon Hewitt
Aon Hewitt empowers organisations and individuals to secure a better future through innovative talent, retirement and health solutions. We advise, design and execute a wide range of solutions that enable clients to cultivate talent to drive organisational and personal performance and growth, navigate risk while providing new levels of financial security, and redefine health solutions for greater choice, affordability and wellness.  Aon Hewitt is the global leader in human resource solutions, with over 30,000 professionals in 90 countries serving more than 20,000 clients worldwide.  For more information on Aon Hewitt, please visit www.aonhewitt.com.

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About Aon

Aon plc (NYSE:AON) is the leading global provider of risk management, insurance and reinsurance brokerage, and human resources solutions and outsourcing services. Through its more than 66,000 colleagues worldwide, Aon unites to empower results for clients in over 120 countries via innovative and effective risk and people solutions and through industry-leading global resources and technical expertise. Aon has been named repeatedly as the world’s best broker, best insurance intermediary, reinsurance intermediary, captives manager and best employee benefits consulting firm by multiple industry sources. Visit www.aon.com for more information on Aon and www.aon.com/manchesterunited to learn about Aon’s global and principle partnership with Manchester United.

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