17 February 2010
Published in: Longevity - mortality
L & G enters longevity insurance market
Legal & General is offering longevity insurance cover from today. The company says its longevity insurance will enable a UK defined benefit pension scheme to hedge its exposure to longevity risk while keeping control of its investment strategy.
The insurance L & G is offering is based on a typical fixed/floating swap structure where the pension scheme agrees to pay L & G a fixed set of monthly cashflows which are equal to the expected annuity (pension) payments on day 1, plus a risk margin, while L & G agrees to make actual monthly annuity payments to the pension scheme over the duration of the contract. Both parties would post collateral.
L & G points out that life expectancy in the UK has steadily increased over the last few decades and that pension schemes are exposed to the risk that their life expectancy assumptions are insufficient with the result that pension provision costs them more than they had assumed.
"Our entrance into the longevity insurance market builds on our position as a leading provider of de-risking solutions to defined benefit pension schemes," said Simon Gadd, Legal & General's managing director for annuities. "Longevity insurance is widely considered as a stepping stone for migration to a fully insured buy-in/out. It can also be used by trustees as part of a ‘DIY' de-risking strategy."