LONDON, 9 January 2012 - Aon Hewitt, the global human resource consulting and outsourcing business of Aon Corporation (NYSE:AON), has said today's announcement that the Pilkington Superannuation Scheme has entered into a longevity swap of around £1 billion with Legal & General (on which the lead advisers were Aon Hewitt), underlines a renewed focus on longevity risk management and the likelihood of a very active risk settlement market during 2012.
Market Outlook for 2012
Martin Bird, managing principal at Aon Hewitt and head of
the Risk Settlement Group said:
"The end of 2011 and now the start of 2012 have seen a flurry of activity on large-scale longevity swap transactions, with £6 billion of deals announced, including Rolls Royce/Deutsche Bank and Pilkington/Legal & General (L&G). In addition, we have also seen a pick-up in activity in the buy-in market, including a £1.1billion deal for Turner & Newall/L&G and one of £800m for Uniq/Rothesay Life.
"This activity built up through 2011 and highlights the ongoing focus on managing pension risk, with both trustees and sponsors aiming to protect funding positions, manage cash contributions and reduce the volatility arising from significant legacy pension liabilities."
Martin Bird continued:
"The longevity swap market in particular is really
emerging as a major influence and we now have a critical
mass of deals announced. With that we are starting to
see some real standardisation in deal structure, which is
helping to make these deals accessible across a much wider
range of schemes."
Aon Hewitt has invested heavily in building up its market-leading Risk Settlement Group, which helps clients to navigate through the complex risk settlement market and to identify transactions that are appropriate for specific needs and objectives.
Martin Bird said:
"With the deals on which we have worked - both during 2011 and before - we can claim to be the leading advisor in the longevity swap market, and we look forward to helping more clients successfully execute risk settlement deals during the course of 2012. The overall risk settlement market, including longevity swaps, buy-ins and a number of other innovative means of transferring risk to the insurance and capital markets, is helping schemes and sponsors to take a much more pro-active approach to managing pension risk."
Longevity deals - the recent history
Pilkington joins ITV, Rolls-Royce and British Airways in
having announced a large longevity swap transaction.
Together with the swaps transacted by Babcock, BMW, RSA and
the Royal County of Berkshire during 2009 and 2010, the
total number of pension fund longevity swaps has risen to
12, covering approximately £16 billion of pension scheme
liabilities.
Date | Fund | Provider | Approx size | Solution |
January 2012 | Pilkington | Legal & General | £1 Bn | Pensioner bespoke longevity swap |
December 2011 | British Airways | Goldman Sachs / Rothesay Life | £1.3Bn | Pensioner bespoke longevity swap |
November 2011 | Rolls-Royce | Deutsche Bank | £3Bn | Pensioner bespoke longevity swap |
August 2011 | ITV | Credit Suisse | £1.7Bn | Pensioner bespoke longevity swap |
February 2011 | Pall | J P Morgan | £70M | Non-pensioners index based longevity hedge |
July 2010 | British Airways | Goldman Sachs / Rothesay Life | £1.3Bn | Synthetic buy-in (longevity swap plus asset swap) |
February 2010 | BMW | Abbey Life / Deutsche Bank | £3Bn | Pensioner bespoke longevity swap |
November 2009 | Royal Berkshire | Swiss Re | £500M | Pensioner bespoke longevity swap |
July 2009 | RSA Insurance group | Goldman Sachs / Rothesay Life | £1.9Bn | Synthetic buy-in (longevity swap plus asset swap) |
May 2009 | Babcock | Credit Suisse | £1.5Bn | Pensioner bespoke longevity swap (3 schemes) |
"Both the Rolls-Royce and Pilkington trustees entered into their longevity transactions as a way of improving the security of all the members' benefits. In both cases, we worked closely with the trustees to identify an appropriate approach and deal structure.
"Longevity swaps are attractive for many schemes as they specifically remove longevity risk, without disturbing schemes' existing investment arrangements. This can be particularly helpful where schemes are relying on their asset portfolios to deliver returns to fund ongoing contributions and to help address existing funding deficits. However, continued improvements in life expectancy and the associated longevity risk are not something which many schemes and sponsors are prepared to chance, and so having the ability to remove that risk on cost effective terms has been a key driver in a number of deals."
Matt Wilmington added:
"But the market and the ways to approach these issues
are evolving. The ability to add longevity swaps to an
existing liability-driven investment portfolio in order to
create a synthetic buy-in solution in-house, means that
schemes have a real alternative to insurance buy-in
solutions. That change should be helpful in creating
a genuinely competitive market for risk settlement
deals."
Lynda Whitney from Aon Hewitt's Risk Settlement Group and lead adviser to the Trustee of the Pilkington Superannuation Scheme said:
"As lead advisers on the Pilkington transaction we worked with the Trustee of the Pilkington Superannuation Scheme to help them to understand and then reduce the longevity risk to their scheme. It is a key step in the trustee strategy to reduce risk and to help ensure the security of members' benefits"
- Ends -
About Aon Hewitt
Aon Hewitt is the global leader in human capital consulting
and outsourcing solutions. The company partners with
organisations to solve their most complex benefits, talent
and related financial challenges, and improve business
performance. Aon Hewitt designs, implements,
communicates and administers a wide range of human capital,
retirement, investment management, health care,
compensation and talent management strategies. With
more than 29,000 professionals in 90 countries, Aon Hewitt
makes the world a better place to work for clients and
their employees. For more information on Aon Hewitt,
please visit .
About Aon
Aon Corporation (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 61,000 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.
Media Contacts:
Colin Mayes
Aon Hewitt
01372 733689
colin.mayes@aonhewitt.com
Quintin Keanie
Capital MSL
020 7255 5154
quintin.keanie@capitalmsl.com
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