Global insurers expand longevity hedging capacity while actuaries and clients debate key mortality assumptions

Global insurers expand longevity hedging capacity while actuaries and clients debate key mortality assumptions

LONDON — Global insurers and reinsurers have significantly expanded capacity for longevity hedging and pension de‑risking as defined‑benefit sponsors move to transfer retirement liabilities, while actuaries, trustees and corporate clients clash over which long‑term mortality assumptions are appropriate for pricing and reserving. What: an accelerating market in bulk annuities, longevity swaps and longevity reinsurance. Who: large life insurers and global reinsurers including specialist reinsurers and new market entrants. When: activity accelerated through 2024 and into 2025, with further market changes and regulatory scrutiny through 2025 and into early 2026. Where: concentrated in the UK and other advanced economies (Europe, North America, Japan), but with growing activity in Asia and Canada. Why: improved pension funding driven by higher government bond yields, abundant insurer capital and new reinsurance capacity have made transfers financially viable for companies and attractive to insurers seeking predictable annuity cash flows. (wtwco.com)

The market in brief

• Consultancy WTW forecast that UK defined‑benefit schemes and corporate sponsors could transact roughly £70 billion in bulk annuity and longevity‑swap activity in 2025 — including about £50 billion of buy‑out/bulk annuity deals and £20 billion of longevity swaps — up from a busy 2024. The firm cited stronger scheme funding and an influx of new insurer entrants as drivers. (wtwco.com)
• Independent data and industry reports recorded record bulk annuity volumes in 2024 (estimates in the range of £47bn–£52bn for buy‑outs) and combined bulk annuity and longevity swap volumes that constitute the busiest two years on record. Insurer and reinsurer press releases show large reinsurance placements and coin‑insurance transactions spanning Europe, North America, Japan and Australia. (reinsurancene.ws)

Why capacity has expanded
Insurers have been expanding capacity through multiple routes: organic appetite for predictable annuity cash flows; reinsurance and coinsurance deals; asset‑intensive and funded reinsurance structures; and the entry or re‑entry of established players and new capital providers into the buy‑out market. A growing roster of providers — including specialist life players, composite insurers and global reinsurers — has increased competition for deals and widened market choice for trustees. WTW’s 2025 de‑risking analysis listed recent entrants and near‑term market entrants and highlighted an unusually competitive bidder set. (wtwco.com)

Reinsurers and dedicated longevity desks have been particularly active. Reinsurance Group of America (RGA) reported several large coinsurance and asset‑intensive longevity transactions in 2024 and 2025, and Munich Re launched a targeted longevity reinsurance product for North America in 2024 to meet demand from pension and annuity writers. Major reinsurers and life companies have also been visible in large pension transactions: for example, the BT Pension Scheme placed long‑dated longevity reinsurance with Swiss Re and RGA in a combined multi‑billion pound set of transactions in 2025. Those deals illustrate the appetite and balance‑sheet capacity of reinsurers to take on long‑dated longevity exposures. (rgare.com)

Market mechanics and the role of interest rates
Higher yields on government bonds since 2022 have materially reduced the value of future pension liabilities on conventional discounting bases, improving many schemes’ funding levels and making buy‑outs or longevity hedges more affordable for sponsors. Trustees and sponsors have therefore been more willing to transfer liabilities, and insurers have been able to deploy capital to write annuity business at prices that are attractive to both sides. Industry analysts say that a combination of favourable funding, insurer pricing discipline and expanding reinsurance capacity underpins the market’s momentum. (ft.com)

The fault line: mortality and longevity assumptions
The expansion of capacity has coincided with an intense technical debate: which mortality and longevity assumptions should govern pricing, reserving and the design of longevity hedges? The argument matters because a one‑year error in assumed future mortality improvements, applied to a large block of pensioner annuities, translates into material profit or loss for insurers and altered covenant and surplus outcomes for sponsors and trustees.

Actuarial bodies and statistical monitors that underpin market assumptions have recently updated methods and data. The Institute and Faculty of Actuaries’ Continuous Mortality Investigation (CMI) published a substantial update to its mortality projections model (CMI_2024), calibrated to population mortality data through the end of 2024 and introducing an “overlay” to capture the pandemic’s short‑term impact. The CMI reported that mortality in 2024 and the first half of 2025 fell to near‑record lows in England and Wales and noted substantial variation by age and sex. Cobus Daneel, chair of the CMI Mortality Projections Committee, said: “Overall mortality in the first half of 2025 was lower than in the first half of any other year.” The CMI_2024 changes raised cohort life expectancy at age 65 by a few months compared with the prior model, but the committee encouraged users to tailor parameters to reflect their own portfolios. (actuaries.org.uk)

Those CMI changes — and broader shifts in observed mortality since 2020 — pushed actuaries and trustees to re‑examine two core choices in longevity modelling:

• the long‑term rate of mortality improvement (the “ultimate” or long‑run improvement rate), and
• the appropriate short‑ to medium‑term weighting of pandemic years and subsequent low‑mortality years when calibrating models.

Some trustees and sponsors, with weaker covenants or concern about downside longevity, have pushed for conservative (lower) improvement assumptions or explicit margins for adverse deviation when evaluating buy‑out quotations. Others — often schemes with strong funding or where sponsors seek to crystallize surplus — have been comfortable with market benchmarks or slightly higher improvement assumptions if doing so produces a more favourable price for a buy‑out. Insurers, for their part, apply portfolio experience, reinsurance overlays and hedging strategies to close the gap between market pricing and long‑term reserve assumptions. (wtwco.com)

Insurer practice: using industry benchmarks while differentiating
Insurers routinely combine public mortality projections with bespoke experience and internal judgement. Public filings and regulatory disclosures show that leading annuity writers typically start from CMI‑style benchmark tables but adjust smoothing parameters, cohort effects and long‑term improvement rates for their own portfolio experience. For example, Legal & General’s public materials describe a methodology that blends industry tables and bespoke adjustments and uses long‑term improvement rates in the 1.0–1.5% range for males and females in parts of its annuity pricing framework. Prudential’s regulatory filings likewise state that the firm uses industry mortality improvement data adjusted for its annuitant portfolio when setting assumptions and reserves. Those internal adjustments — and the difference between pricing assumptions used in competitive quotes and prudent reserving bases — are a key source of negotiation and occasional disagreement in transactions. (quarterlytics.com)

Actuaries’ methodological debates
Beyond point assumptions, actuaries are debating methodology. The CMI’s move to CMI_2024 introduced a fitted overlay for the pandemic and modified the model fitting process; academic work and industry research have also advanced models that incorporate cohort effects, long‑range dependency and fractional Brownian motion to capture persistence in mortality trends. Some consulting actuaries argue that more granular models better capture the risk in insurer portfolios; others caution that model complexity can introduce parameter uncertainty and spurious precision when used for pricing large, long‑dated liabilities.

Consultancy practitioners and buy‑side advisers emphasise transparency: trustees should understand the sensitivity of buy‑out prices to central assumptions and the company’s covenant should be part of the decision framework. “The relatively stable market conditions over 2024 combined with the rise in gilt yields…has meant schemes’ funding levels have generally continued to improve,” WTW pension derisking leads said, stressing that trustees must weigh funding headroom, pricing and the margin for error when deciding whether to transfer risk. (actuaries.org.uk)

Case studies: large transactions and how they were structured
Several recent large transactions provide a practical lens on how disagreements and technical choices are resolved in the market.

• BT Pension Scheme (UK): In March 2025 the scheme executed two longevity reinsurance agreements — reportedly £5 billion with Swiss Re and another £5 billion expansion with RGA — using the scheme’s captive to facilitate the arrangements. Trustees and advisers emphasized that the reinsurance expanded the scheme’s longevity protection and supported its long‑term investment plan; reinsurers pointed to their capacity and technical capability to underwrite such deals. (artemis.bm)

• Reinsurance, coinsurance and asset‑intensive deals: RGA, Munich Re and others have completed domestic and cross‑border asset‑intensive and coinsurance transactions in Japan, the US and Europe, demonstrating multiple pathways for insurers and pension schemes to manage duration, capital and liquidity. RGA’s 2024 coinsurance with Japan Post and Munich Re’s 2024 longevity reinsurance product launch for North America demonstrate both market appetite and product innovation. (rgare.com)

Regulatory scrutiny and systemic questions
The rapid growth of new structures — especially “funded reinsurance” arrangements that bundle an upfront funded premium with longevity reinsurance and often involve offshore reinsurers — has drawn explicit regulatory attention. The Prudential Regulation Authority (PRA) and Bank of England have flagged potential regulatory arbitrage and systemic concentration risks where large volumes of long‑dated pension risk are ceded to a small number of counterparties or held in structures that may not be captured adequately by current prudential rules.

In a high‑profile speech the PRA’s director for prudential policy said supervisors “believe that now is the right time to take stock” of funded reinsurance and examine whether the current regulatory framework treats such bundled transactions appropriately for capital and valuation, warning that the practice could produce an underestimation of risk if left unchecked. The regulator signalled stress testing and potential future adjustments to the regulatory treatment of funded reinsurance. Industry commentators and consultancy firms expect that closer supervision could affect pricing and capacity for some large transactions. (bankofengland.co.uk)

Insurer responses and balance‑sheet management
Insurers and reinsurers say they are already managing longevity exposures through hedging programs, reinsurance, capital management tools (including sidecars and third‑party capital) and enhanced modelling. Global asset managers and insurers alike report greater use of third‑party capital and reinsurance vehicles to expand capacity without unduly diluting insurers’ balance‑sheet metrics. BlackRock’s 2025 analysis of global insurers noted an industry trend toward greater use of reinsurance sidecars and third‑party capital as part of capital management strategies. Munich Re, RGA and other reinsurers have publicly touted their longevity underwriting expertise and balance‑sheet strength as a competitive advantage in supporting large transactions. “We believe there is significant, untapped demand for longevity reinsurance in the US and Canada markets and we are well positioned to meet it,” Munich Re North America Life’s leadership said when launching its product. (blackrock.com)

Where trustees and actuaries still disagree
Despite broad industry conventions and benchmark models, the market continues to see difference of views on:

• the length and degree of the pandemic’s residual effect on mortality trends and whether recent low mortality should be given full weight in long‑term projections; (actuaries.org.uk)
• the long‑term improvement rate to use for pricing vs. reserving (market pricing often reflects competitive dynamics; reserving needs to be prudent and calibrated to portfolio experience); (quarterlytics.com)
• how to reflect medical and technological change (new treatments, drugs and health behaviours) that could push mortality lower over multi‑decadal horizons, and how to allow for the risk that new interventions may not be widely adopted or sustained. Industry and reinsurer research has begun to quantify scenarios — such as the potential impact of new metabolic or longevity drugs — but uncertainty remains large. (marketwatch.com)

Market consequences and practical steps for participants

• For trustees: advisers recommend transparent sensitivity analysis in tendering processes that shows how buy‑out offers, longevity swap pricing or surrender values move under alternative improvement scenarios. Trustees should also understand the reinsurance counterparties and any funded reinsurance wrap and their regulatory status and assets. (wtwco.com)
• For insurers: firms should document the rationale for assumption choices, the interaction with hedging and reinsurance, and the capital management plans to absorb adverse longevity shocks. Reinsurers must be clear about the collateralisation, investment strategies and jurisdictional regulatory differences embedded in funded structures. (rgare.com)
• For regulators: supervisors are signaling closer attention to complex structures and stress‑testing of life insurers’ exposures to longevity and any concentration of funded reinsurance, while indicating they do not intend to prohibit funded reinsurance but may alter its regulatory treatment going forward. (bankofengland.co.uk)

Outlook and risks
Market participants and advisers expect robust deal flow in 2025 and beyond as funding levels and insurer appetite remain supportive, but several risks could alter the outlook:

• adverse mortality experience (for example, unexpected reversals in recent low mortality), which would increase insurers’ longevity payouts and could widen gaps between pricing and realized experience; (actuaries.org.uk)
• regulatory changes to the treatment of funded reinsurance that would raise capital costs for some structures or curtail the attractiveness of offshore wraps; (bankofengland.co.uk)
• macroeconomic shifts (rapid falls in yields, for example) that could reduce scheme funding headroom and slow sponsor willingness to transact. (ft.com)

Conclusion
The last two years have seen an acceleration in pension de‑risking transactions and a clear expansion in longevity hedging capacity across major insurers and reinsurers. That expansion has been supported by favourable funding conditions, product innovation and the active participation of reinsurance markets. At the same time, technical disagreements over mortality and longevity assumptions — amplified by new CMI modelling choices, portfolio‑specific experience and novel medical scenarios — mean trustees, clients and insurers remain locked in difficult negotiations over pricing, margins and the appropriate allocation of long‑term risk.

The outcome of those negotiations, and of regulatory reviews into funded reinsurance and prudential treatment, will shape where capacity sits, how cheap longevity protection is for sponsors, and how much risk insurers will retain on their balance sheets. For now, the market’s momentum is clear; the terms and durability of the transfer of longevity risk will be set jointly by actuarial judgement, commercial competition and evolving regulatory guardrails. (wtwco.com)

Sources: WTW De‑risking Report and press release (Jan. 27, 2025); CMI / Institute and Faculty of Actuaries mortality monitors and CMI_2024 update (June 30, 2025 and subsequent monitors); industry reporting and re/insurer press releases on major longevity transactions (Swiss Re, RGA, Munich Re); Bank of England / Prudential Regulation Authority speeches and consultation material on funded reinsurance; insurer filings and public documents (Legal & General, Prudential). Specific cited materials include WTW, CMI/IFoA, Bank of England (PRA), Munich Re, Swiss Re/RGA and industry reporting. (wtwco.com)