Three U.K. companies have recently unloaded a combined £5.3 billion ($8.7 billion) in longevity risk from their pension funds, making 2013 a record-breaking year for such transactions.
The deals bring the total volume of pension risk transactions, which include longevity swaps and bulk annuity arrangements, in the U.K. to a record £16 billion for the year.
The previous record was £12 billion in 2011. Since 2008, the yearly average had been about £8 billion.
But experts think 2013's higher level of activity could become the norm.
In December, pharmaceutical company AstraZeneca UK Ltd. and construction services firm Carillion PLC entered into separate longevity swaps with Deutsche Bank AG.
Also, BAE Systems PLC announced it had agreed to longevity insurance deals covering £1.8 billion of liabilities across two of its pension funds with Legal & General Group PLC, confirmed a spokeswoman for the defense contractor.
AstraZeneca Pension Fund Trustee, Cheshire, England, entered into a £2.5 billion longevity swap.
Matt Wilmington, partner at Aon Hewitt, the lead adviser to the pension fund, said the deal covers about 40% of the total liabilities of the AstraZeneca fund, which has $6.9 billion in assets, and 10,000 of the fund's current retirees.
In a statement, Mr. Wilmington said: “It was clear during the negotiations for this transaction that the capacity and appetite of the global reinsurance market to take on pension fund longevity risk is ever increasing.
“Together with Deutsche Bank we ran a competitive process, including the established reinsurers as well as a number of new market entrants, which has enabled the fund to transact at the best available terms,” he said in the statement.
Alexandra Lynch, spokeswoman for the pension fund, could not be reached by press time.
Carillion PLC, Wolverhampton, England, entered into a longevity swap for its five defined benefit pension funds with Deutsche Bank valued around £1 billion.
The deal covers about 50% of the pension funds' liabilities, said Suthan Rajagopalan, principal and DB plan risk transfer expert at Mercer, which advised the plans' trustees.
The swap hedges against the risk of rising costs as a result of the current retirees in the pension funds living longer than expected. The deal was priced as a single plan but executed as five separate swap contracts to reduce costs but retain flexibility, according to a Mercer news release. It covers around 9,000 retirees.
PricewaterhouseCoopers International Ltd.'s pension team advised Carillion. A spokesman for Carillion could not be reached for further comment.