Investment banks may be pulling out of the longevity swap market, but insurers, reinsurers and consultants are all starting to build their teams. Unfortunately, hiring is relatively diminutive.
Longevity swaps are complex, but essentially they’re a tool that allows pension schemes to mitigate against the risk of members living longer than expected. Last year was a record year for deals (although only 12 have ever been transacted), after ITV, Rolls-Royce, British Airways and Pilkington all signed up for longevity swaps. More recently, Deutsche Bank agreed a €12bn swap contract with Dutch insurer Aegon.
In the past month, UBS and Nomura have both pulled out of longevity swaps and Credit Suisse closed its desk last year. UBS's adventure in longevity swaps was particularly short lived: it hired a four man team in late 2010 and got rid of them all a few weeks ago after they failed to do any deals and it decided to move away from complex long term transactions.
UBS’s longevity team, Ian Aley, Tim Coulson, Tesula Mohindra and David Still, is believed to have left the bank. Credit Suisse signed two of the largest longevity swaps deals since entering the market three years ago – ITV and Babcock International – but still decided to pull out as part of a wider shake-up. Nomura, meanwhile, only put its longevity swaps team together in the summer, but has since pulled out. It’s not clear whether the team was made redundant, but recruiters suggest that many in banks’ longevity swaps teams have moved to other roles the insurance business.
This means that just two investment banks – J.P. Morgan and Deutsche Bank – are still in the longevity swaps market.
The good news is that as fast as banks retreat, reinsurers are moving in.
In the last year, firms such as Scor, Prudential and Munich Re have all entered the market, competing with more established players like Partner Re, Swiss Re and L&G, which has started targeting smaller pension schemes.
“Proportionately, the longevity swaps teams of insurers and reinsurers are small – usually around 20 people – but we’re seeing more of an interest to recruit,” says Paul Walsh, CEO of insurance recruiters Acumen Resources. “Although it’s niche, like any new product area it’s seen as an attractive area to work in and has received more interest from potential candidates.”
“We’re seeing more people moving out of the Big Four accountancy firms’ pensions practice looking for opportunities within reinsurance firms to get hands on experience on the other side of the fence,” says Steve Stubbings, managing director at insurance and pensions recruiter The Emerald Group. “We’d also to see roles emerging within management consultants, such as McKinsey or Oliver Wyman, as they offer advice on de-risking clients’ portfolios.”
Walsh says that “good capital modelling skills coupled with commerciality” are key to securing a role on a longevity risk team. Stubbings, meanwhile, suggests that employers are looking for a combination of deal experience and annuities exposure with “an ability to do more than crunch the numbers”. While recruitment has yet to take off in a big way, it has the potential to do so if this buoyant deal activity continues.
“As long as banks and insurers continue to provide a flexible approach to make these risk transfers feasible and affordable to all pension schemes, we will see more deals in the pipeline and indeed more insurance companies looking to enter into this market,” said James Mullins, partner and head of Hymans Robertson’s buy-out solutions team.
An actuary working on longevity swap or buyout opportunities should expect between £70-95k a year, dependent on experience, suggest recruiters.