L&G extends longevity swap programme with reinsurers
Legal & General has continued to build out its longevity risk transfer platform with a series of reinsurance and swap transactions that deepen its relationships with global reinsurers and broaden its role across both UK and international pension risk transfer markets. For insurers and reinsurers active in bulk annuities and pension risk transfer, this shows the central role of longevity reinsurance capacity and structuring flexibility in scaling the business model.
Legal & General has an established track record of reinsuring longevity exposure with Prudential, including a transaction valued at $2.9 billion in August 2015. It followed this with further longevity reinsurance with Prudential in August 2016, reinforcing the bilateral pipeline between a leading UK pension risk transfer writer and a major US reinsurer. For capital managers, this pattern illustrates how large writers are using repeat counterparties to secure predictable capacity and pricing for longevity risk, which in turn supports their ability to write larger and more capital‑intensive bulk annuity deals.
On the pension scheme side, Legal & General has been central to some of the landmark bespoke longevity swaps that have shaped the evolution of the UK market. Pilkington executed a pensioner bespoke longevity swap with Legal & General and Hannover Re valued at £1 billion in December 2011, one of the early large‑scale transactions to move pensioner longevity risk off balance sheet via a tailored structure. In 2018, Legal & General transacted its first streamlined longevity swap of £300m, explicitly aimed at bringing additional choice to smaller schemes that previously struggled to access the market on efficient terms. That combination of bespoke and streamlined structures shows how insurers are segmenting the market: high‑touch, customised swaps for large schemes, and more standardised, lower‑friction solutions for mid‑market and smaller schemes.
The broader UK de‑risking market context remains substantial. Buy‑ins and buy‑outs covered around £6.7 billion of pension scheme liabilities in the first half of 2021 across 57 transactions, showing the steady flow of business available to insurers able to warehouse or reinsure longevity and other risks efficiently. Since mid‑2009, pension scheme longevity swap transactions have covered over £116bn of pension scheme liabilities, highlighting the scale of risk already transferred to insurers and reinsurers and the depth of the longevity hedging ecosystem that firms like Legal & General operate within.
Even within that large stock of activity, recent longevity swap volumes have been concentrated in a small number of very large deals. Two longevity swaps completed in 2021 covered almost £10bn of liabilities, confirming that the market remains capable of absorbing multi‑billion exposures in single transactions when reinsurance capacity and structuring appetite align. LCP advised the sponsor of an unnamed scheme on a c£6bn longevity swap with PICA, which it notes is the fourth largest ever completed in the UK, further demonstrating the willingness of US reinsurers to take on sizeable UK pension longevity risk. For insurers, this concentration in mega‑swaps means that access to a small group of deep‑pocketed reinsurers can be a binding constraint on growth, particularly for writers targeting jumbo buy‑ins and buy‑outs that require back‑to‑back longevity hedging.
Legal & General has also extended its longevity and pension risk transfer franchise beyond the UK. It entered the US pension risk transfer market in 2015, executing a $450m transaction with the US subsidiary of Royal, marking a strategic step in diversifying its geographic exposure and accessing a different pool of corporate sponsors and mortality dynamics. In parallel, other insurers have used longevity swaps to innovate on coverage scope: in February 2021, Axa Group transacted a £3bn longevity swap with Hannover Re, described as the first ever longevity swap to cover deferred members, signalling a willingness among reinsurers to take on more complex and longer‑dated exposures where pricing and data support it.
Reinsurance counterparties remain central to this ecosystem, with Prudential Insurance Company of America also active as a longevity reinsurer to UK pension risk transfer writers. Pension Insurance Corporation, for example, transacted longevity reinsurance with Prudential Insurance Company of America valued at $1.1 billion in June 2016, illustrating that multiple UK bulk annuity providers are tapping the same pool of global reinsurers for capital‑efficient longevity protection. For investment and ALM teams, this reinforces that the ability to originate long‑dated, illiquid assets is only one side of the bulk annuity equation; the other is securing sufficient reinsurance capacity to manage tail longevity risk and optimise solvency capital usage.
For insurers planning to scale bulk annuity and longevity swap activity, the practical constraint is increasingly the depth and diversification of reinsurance relationships rather than demand from schemes, which remains strong across both mid‑market and jumbo transactions.
