Low interest rates, volatile equity markets and rising life expectancy – as well as the prolonged economic downturn – have significantly increased pension deficits, creating ‘increasingly unwelcome pensions distractions’ for major companies, the consultancy said.
In light of this, the last five years have seen almost 100 bulk annuity and longevity swap deals over £50m in size completed in the UK, with a combined value of £33bn, the consultancy said last week. Last year alone, around 150 deals were made, with an estimated value of £10.2bn.
Earlier this month, US car manufacturer General Motors announced plans to discharge around $26bn of its DB pension liabilities to individual plan members. The Prudential Insurance Company of America also recently ‘proactively’ managed its pension obligations in the US and Europe by announcing a longevity reinsurance deal with a UK insurer.
Frank Oldham, Mercer’s global head of DB risk and senior partner, said: ‘The market for transferring pension risk away from plan sponsors has developed significantly in the UK in recent years with the number, size and sophistication of these deals all moving on in leaps and bounds.
‘Other European countries, particularly the Netherlands and Ireland, are also starting to see more activity and interest in this area and so it was therefore just a matter of time before these developments transferred to a latent US market.’
Gordon Fletcher, a US-based principal at Mercer, said there were other US insurers interested in UK business. ‘This is significant since it shows that at least some US insurers have such a strong appetite for pension risk that they are willing to travel over 3,000 miles to get it.’
‘Across the globe, we are seeing developments, with AEGON in the Netherlands transacting a longevity swap and the announcement that a Canadian insurer is now open for longevity business,’ he added.