Aon Hewitt says the announcement of the latest longevity swap transaction underlines a renewed focus on longevity risk management and the likelihood of a very active risk settlement market during 2012. The latest deal is a £1bn trade between the Pilkington Superannuation Scheme and Legal & General (L&G) on which the lead advisers were Aon Hewitt.

Martin Bird, managing principal at Aon Hewitt and head of the Risk Settlement Group comments: "The end of 2011 and now the start of 2012 have seen a flurry of activity on large-scale longevity swap transactions, with £6bn of deals announced, including Rolls Royce/Deutsche Bank and Pilkington/L&G. This activity built up through 2011 and highlights the ongoing focus on managing pension risk, with both trustees and sponsors aiming to protect funding positions, manage cash contributions and reduce the volatility arising from significant legacy pension liabilities."

He continues: "The longevity swap market in particular is really emerging as a major influence and we now have a critical mass of deals announced. With that we are starting to see some real standardisation in deal structure, which is helping to make these deals accessible across a much wider range of schemes."

Matt Wilmington, principal at Aon Hewitt and lead adviser on the Pilkington transaction, adds: "Continued improvements in life expectancy and the associated longevity risk are not something which many schemes and sponsors are prepared to chance, and so having the ability to remove that risk on cost effective terms has been a key driver in a number of deals. But the market and the ways to approach these issues are evolving. The ability to add longevity swaps to an existing liability-driven investment portfolio in order to create a synthetic buy-in solution in-house, means that schemes have a real alternative to insurance buy-in solutions. That change should be helpful in creating a genuinely competitive market for risk settlement deals."

Pilkington joins ITV, Rolls-Royce and British Airways in having announced large longevity swap transactions (STORM passim). Aon Hewitt provides the following table showing all the UK transactions completed to date: