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Global reinsurance broker Aon says longevity markets are continuing to function effectively despite COVID-19 and has cautioned pension schemes against over-reacting to high short-term UK mortality data when setting their long-term mortality assumptions.

Tim Gordon, partner and head of Demographic Horizons in Aons Risk Settlement Group, noted how were emerging from the initial wave of the global COVID-19 pandemic with no effective vaccine and with some critical aspects still unknown. As a result, some people assume that life expectancy must have reduced, but this is not necessarily the case.

While there are potential outcomes of this crisis that could reduce life expectancy, including the possible impact of economic recession, there are also potential outcomes that could result in higher life expectancy, said Gordon.

These could include increased spending on health and social care, and a potential hardening of the UK to future pandemics.

On top of this, the socio-economic profile of pension schemes means that their liabilities are typically partially insulated from the variations we see in national mortality statistics.

Accordingly, it would be premature now to make major changes to best estimate longevity assumptions in either direction. Indeed, it is reasonable for median best estimate assumptions to remain broadly unchanged.

Martin Bird, senior partner and head of Aons Risk Settlement Group, added, Longevity markets have continued to function efficiently over the course of the crisis to date, with bulk annuities and longevity swap transactions continuing apace.

Trustees and sponsors have, in our experience, taken the view that risk settlement forms part of their long-term risk management strategy and have been comfortable with proceeding with transactions, despite the turbulence from COVID-19.

In fact, in some cases, agile clients have been able to take advantage of pricing opportunities, such as those arising from increased credit spreads earlier in the crisis.

More than ever, it is important for schemes to keep their wits about them when entering a potential transaction.

Particular features in the current environment are the need to understand the consequences of different on-risk dates and the potential for regret risk as well as ensuring that investment portfolios are adequately stress-tested to guard against any later liquidity problems.

Read more:
Aon warns against over-reaction to short-term COVID-19 mortality data - Reinsurance News

This entry was posted on June 14, 2020 at 7:50 am and is filed under Longevity. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed. |