Mercer Sees Pensions Handing Off Risk in Growing Numbers

A global trend of transfers in pension risk have accelerated as plan sponsors offload risk to third parties, says Mercer, which is positioning itself to profit from the demand.

(June 20, 2012) — Mercer has expanded its capacity to handle pension risk transfer assignments as defined benefit plan sponsors are increasingly transferring their risk to third parties.

In response to the perceived increase in pension risk transfer deals, Bernie Hughes, CFA, has joined Mercer Investments as a senior consultant in the Annuity Settlement Group — a hiring motivated as countries around the world have battled growing pension obligations amid low interest rates, volatile equity markets, and rising life expectancies. As a result, pension deficits have continued to grow, presenting plan sponsors with “increasingly unwelcome pensions distractions,” according to Mercer.

“We have seen Prudential announce a longevity reinsurance deal with a UK insurer and we know that other US insurers are also interested in UK business,” stated Gordon Fletcher, one of Mercer’s US-based specialists in pension longevity risk. “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.”

The observation by Fletcher also follows news earlier this month of General Motors Co’s intended discharge of around $26 billion of defined benefit pension liabilities to individual plan members.

Mercer’s Global Head of DB Risk and Senior Partner, Frank Oldham added: “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.”

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