“The longevity hedge significantly reduces risk within the pension scheme, providing increased security to members and more certainty to AXA. Towers Watson was delighted to help the Trustees and AXA negotiate an attractively-priced contract.
“Last year’s four major longevity transactions (for BT, MNOPF, Aviva and Scottish Power) covered £25bn of pension liabilities between them. This is the first to be completed in 2015 but several more deals are expected – reinsurers are reporting strong pipelines and pricing competitively.
“Two features of this transaction help explain why there is so much interest in hedging longevity risk right now. First, the progress that the scheme had made in de-risking its assets made longevity a more significant unhedged risk – more and more schemes are finding themselves in this position. Second, the scheme was able to reduce the cost of hedging by accessing the reinsurance market through an insurer owned by AXA. Obviously, not all sponsors will be insurers, but trustee-owned insurance vehicles can deliver similar reductions in cost and complexity, making longevity hedging an option for more schemes”
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