HEALTH WEALTH CAREER MERCER WEBINAR LONGEVITY RISK ARE YOU READY TO HEDGE? 26 APRIL Alan Baker Andrew Ward Suthan Rajagopalan

Transcription

1 HEALTH WEALTH CAREER MERCER WEBINAR LONGEVITY RISK ARE YOU READY TO HEDGE? 26 APRIL 2016 Alan Baker Andrew Ward Suthan Rajagopalan

2 AGENDA 1. BACKGROUND 2. KEY CONSIDERATIONS 3. NEW WAYS TO MANAGE THE RISK 4. NEXT STEPS AND QUESTIONS MERCER

3 BACKGROUND MERCER MERCER

4 WHY WORRY ABOUT LONGEVITY RISK THE PROBLEM Wealthy men living longer than average woman for first time - The Guardian, October 2015 Average life expectancy heading for The Telegraph, January 2015 Longevity greater risk to pension schemes than low interest rates - Fitch Ratings, August 2015 Cardiovascular disease deaths drop by 40% in 10 Years - ITV News, August 2015 Britons to live up to four years longer than official estimates by The Telegraph, April 2015 Why so many celebrities have died in BBC, April 2016 Mercer estimates that c. 250bn has been added to DB liabilities over the last 10 years due to increased life expectancy MERCER

5 MARKET OVERVIEW bn LONGEVITY SWAP BUSINESS VOLUMES VALUE OF LIABILITIES HEDGED NUMBER OF TRANSACTIONS Number INSURANCE INTERMEDIARIES CAPTIVES END RISK HOLDERS ABBEY LIFE ZURICH SCHEME-OWNED REINSURERS LEGAL & GENERAL OFF-THE-SHELF CAPITAL MARKETS MERCER

6 KEY CONSIDERATIONS MERCER MERCER

7 KEY CONSIDERATIONS SHOULD LONGEVITY RISK BE MANAGED? HOW SHOULD LONGEVITY RISK BE MANAGED? HOW SHOULD A LONGEVITY SWAP BE STRUCTURED? MERCER

8 SHOULD LONGEVITY RISK BE MANAGED? RISK IMPLICATIONS DATA PRICING BUY NOW WHILE STOCKS LAST? SCHEME SIZE KEY STAKEHOLDERS SCHEME/ SPONSOR CONTEXT MERCER

9 NEW WAYS TO MANAGE THE RISK MERCER MERCER

10 STREAMLINED LONGEVITY HEDGE What is it? It allows schemes too small for the traditional approach to insure their pensioners longevity risk Pre-agreed terms and platform development with Zurich streamline the process Retain all assets (no upfront premium or collateral) What s so special about it? Unique in the market no-one other consultancy has access to this Proof of concept delivered in 2015 resulted in the smallest ever named pensioner longevity swap ( 90m) 2 nd and 3 rd deals expected in Q Pre-agreed panel of reinsurers who Zurich immediately shares risk with Scheme asset that can be converted to a bulk annuity later Who does it apply to? Applies for all schemes with pensioner liabilities between c. 50m and 500m: not only fiduciary/managed asset clients Other small scheme solutions L&G has marketed an uncollateralised longevity hedge since 2012, but is yet to transact for pensioner liabilities less than 500m MERCER

11 PASS-THROUGH LONGEVITY HEDGE What is it? A variation of the traditionally intermediated longevity hedge Still contracting with a traditional PRA regulated intermediary No upfront premium What s so special about it? Reduced intermediation fee in exchange for taking on credit risk of reinsurer (albeit collateralised) 1 st deal for c. 0.8bn completed in December 2015 Greater flexibility than traditional approach on conversion to bulk annuity and cost savings Who does it apply to? Applies for all schemes with pensioner liabilities between c. 500m and 5bn. MERCER

12 CAPTIVE LONGEVITY HEDGE What is it? A longevity risk transfer using an offshore insurance cell company instead of a traditional intermediary Scheme-owned offshore cell engages directly with reinsurance market on collateralised basis No upfront premium What s so special about it? Reduced intermediation fee in exchange for taking on credit risk of reinsurer (albeit collateralised) Greatest flexibility and cost savings on conversion to bulk annuity Greatest control on valuation and cashflow calculation Who does it apply to? Applies for all schemes with pensioner liabilities over c 1bn. MERCER

13 NEXT STEPS AND QUESTIONS MERCER MERCER

14 NEXT STEPS MERCER

15 ANY QUESTIONS? Alan Baker Partner Andrew Ward Partner Suthan Rajagopalan Principal QUESTIONS Please type your questions in the Q&A section of the toolbar and we will do our best to answer as many questions as we have time for. To submit a question while in full screen mode, use the Q&A button, on the floating panel, on the top of your screen. FEEDBACK Please take the time to fill out the feedback form at the end of this webcast so we can continue to improve. The feedback form will pop-up in a new window when the session ends. CLICK HERE TO ASK A QUESTION TO ALL PANELISTS MERCER

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