* 5 bln stg longevity swap is largest ever
* Brings total issuance to 30.1 bln stg
By Jemima Kelly
LONDON, March 6 British insurer Aviva has
agreed to transfer the risk of members of its staff pension
scheme living longer than expected to three reinsurers for 5
billion pounds ($8.4 billion) in the largest deal of its kind.
Aviva's transaction by itself represents more than half of
the total 8.9 billion pounds of longevity swaps in 2013 and is
substantially larger than the previous 3.2 billion pound record
set by BAE Systems last year.
Longevity swaps, which involve a final-salary pension scheme
hiving off the risk that it will have to pay pensioners for
longer than expected, have become a growing market because
statisticians have consistently underestimated life expectancy.
Aviva told Reuters on Thursday that the deal was agreed with
Swiss Re, Munich Re and SCOR.
The swap is the first of 2014 and lifts total issuance since
the first deal in 2009 by 20 percent to 30.1 billion pounds.
"The trustee is delighted to have taken another important
step in our ongoing process to improve further the level of
security of all our members' benefits," Ian Prosser, chair of
trustees for the Aviva Staff Pensions Scheme, said in a
Longevity swaps provide a way for reinsurers, which help
shoulder risks faced by insurance companies in exchange for
profit, to offset the risk of early death they take on through
the writing of life insurance.
"There is a compelling rationale for pension plans and
insurers to transfer their longevity risk to reinsurers," said
Daniel Harrison, head of longevity solutions at Swiss Re.
"We have a natural offset with our mortality business (and)
the capacity to write the business onto our balance sheet."
But longevity swaps could also attract a broader range of
investors, such as hedge funds and sovereign wealth funds, which
may see the market as a chance to diversify because of its lack
of correlation with other asset classes.
Andrew Ward, who advises pension scheme trustees for
consultancy firm Mercer, said he is in talks with risk-takers
outside the reinsurance market, which has so far taken on all
the risk in longevity swaps.
Ward also said there are a number of multibillion-pound
deals in the pipeline, including, for the first time, pension
schemes in countries other than Britain.
Sidley Austin, which advised Munich Re, said the German
company was the lead reinsurer in the transaction, though Aviva
declined to disclose details on how the deal was split.
The transaction was brokered by Linklaters and Hymans