Small schemes set for longevity swaps

Insurers are unwilling to take on the longevity risk of small schemes, as the price paid in premiums does not justify the cost of constructing the products, which only large plans or sponsors can cover.

But many are keen to insure a number of schemes with one pre-designed swap, where only tailored longevity assumptions vary between schemes.

And Paternoster chief executive officer Ed Jervis told PW that his company, which brokers derisking deals, was in discussions with a number of schemes in the £100m-£500m bracket about bringing enough bulk to market for a provider to bring them onto its books.

“I think we’ll see the first of these going through this year,” he said. “There are schemes of significantly less than £1bn looking at this right now.

“We are interested in getting a few of them together – sufficient interest should make the product design possible in the near future, and then I think we will see several small schemes doing this in a short space of time.”

Lane Clark & Peacock partner and derisking specialist Charlie Finch agreed this type of swap would represent a “holy grail” for insurers, but added expecting one this year is “optimistic”.

He said: “All the swaps that have been done so far have been by different providers and structured in different ways.

“But there is a lot of standardisation in buy-ins at the moment, so it would be good to get it for longevity swaps too.”