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Impact Investing

IPE special report May 2018

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BNP Paribas sees interest in new longevity bond

UK – BNP Paribas says it is seeing trustee interest in the so-called longevity bond it plans with the European Investment Bank.

Mark Azzopardi, head of insurance and pensions at BNP Paribas’ global risk solutions, told IPE at the sidelines of a conference that UK pension scheme trustees are interested in the bond it plans to issue in conjunction with the EIB later this year.

“There’s been a lot of interest,” he said, adding it was important to plug into the trustee meeting cycle. Azzopardi was speaking at the longevity risk and capital markets conference at the Cass Business School.

Legal & General’s Chris Hantry, who designs liability matching products for pension clients, told delegates that a traded market for longevity could make annuities cheaper and pension schemes less risky. This would have “considerable benefits to society in general”.

The EIB said in November last year that it would issue a 25-year £540m (€775m) bond as part of a product designed by BNP Paribas aimed at protecting UK pension schemes against longevity risk.

A Lehman Brothers analyst told the conference that pension liabilities at top UK companies could be “much much larger” than expected due to the mortality assumptions being used by the schemes.

Senior equity analyst Farook Hanif cited estimates that up to £20bn could be added to pension deficits at companies due to changes in mortality assumptions. But he said: “I think it could be much much larger”.

He explained: “We don’t know what assumptions they are using.” He suggested there could be up to a 24% increase in liabilities.

Pointing to the fact that several corporate defined benefit schemes have deficits that are larger than the sponsor’s market capitalisation, Hanif said: “You can image the gearing effect.”

“UK Plc is very much exposed to longevity risk.”

Gavin Jones, strategy research actuary at Swiss Re, said that DB schemes are discouraged by tax rules from holding excess reserves – which virtually forces them to be underfunded.

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