LONDON (6 July 2017) – Aon plc (NYSE:AON), has said that at the halfway point of 2017, pricing in the longevity market is back in synch after the dislocation that occurred last year.
Martin Bird, senior partner and head of Aon Hewitt’s Risk Settlement Group, said:
“Longevity reinsurers took their time to recognise the emergence of a heavier-than-expected UK mortality experience - and that caused a price dislocation in the UK longevity reinsurance market. 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. We believed they needed to wait for reinsurers to recognise the emerging data.
“Thankfully the market has now effectively ‘re-located’ and the strike price for a typical longevity swap has reduced significantly. We believe that pricing is back in synch and that dislocation is no longer a major concern. 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.”
Tim Gordon, partner and head of Longevity at Aon Hewitt, said:
“The weekly deaths data published by the UK Office for National Statistics confirms that the mortality experienced in England & Wales continues to be significantly higher than had been expected five years ago.
“The debate over whether recent mortality experience is a blip or a genuine trend appears therefore to have been settled. We now have a more tempered and nuanced industry-wide discussion that, in addition to taking account of the emerging national data, is also updating its thinking on the underlying drivers of future mortality improvement and how these will impact pension scheme liabilities.”
Martin Bird said:
“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. However, prospective purchasers of longevity risk protection should still take steps to ensure that the pricing they receive is fully up-to-date and competitive.”
Aon plc (NYSE:AON) is a leading global professional services firm providing a broad range of risk, retirement and health solutions. Our 50,000 colleagues in 120 countries empower results for clients by using proprietary data and analytics to deliver insights that reduce volatility and improve performance.
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