Longevity Hedging: A Developing Market

Last year saw longevity hedging by U.K. pension plans move from theory to practice. Previously, use of such contracts to transfer longevity risk was limited primarily to life insurance companies seeking protection on their annuity books. However, in June 2009 the U.K. engineering group Babcock International PLC, confirmed that the trustees of one of their defined benefit pension plans had entered into a 50-year longevity trade, reportedly with Credit Suisse, with a notional value of GBP500 million (this was to be the first of three trades completed by pension plans within the Babcock group in 2009).