Rothesay offloads longevity risk to US

Rothesay Life, the wholly owned Goldman Sachs insurance subsidiary, has successfully reinsured £100 million-worth of longevity exposure to US-based firm Prudential Retirement.

The deal by Prudential Retirement – a business unit of Prudential Financial, no relation to the similarly titled UK insurer – marks its first longevity transaction, bringing another player to the market. Additional reinsurance capacity will be welcomed given that corporate pension funds in the UK plan to offload about £20 billion in defined benefit liabilities over the next 18 months, according to pension consultancy Hymans Robertson.

James Mullins, head of buy-out solutions at the consultancy, says the strong pipeline means the total figure for longevity transactions will rise from £30 billion up to now, to £50 billion by end-2012.

“2010 was the third successive year during which £8 billion of pension scheme risks were transferred via buy-ins, buy-outs and longevity swap deals. 2011 is likely to see a substantial increase above these levels.

“Several multi-billion pound buy-ins and longevity swaps are being tendered and expected to complete during 2011. Furthermore, many providers acknowledge they are devoting serious resources to around 20 similar projects for some of the UK’s largest pension schemes.

“Based on the level of activity currently in the market, we expect one in four FTSE 100 companies to have completed a material pension scheme risk transfer deal by the end of 2012.”