Insurance & Actuarial8 min read

Longevity Risk Transfer: Pensions and Insurer Strategies

By Jonas Adam Mohamed Osman, known as Yonas Osman

CEO of Quantica Risk

60 Rue François Ier, 75008 Paris, France

Published 15 October 2026

An overview of longevity risk transfer markets: buy-ins, buy-outs, longevity swaps and reinsurance, and how insurers price and manage the exposure.

Executive answer

Longevity risk, the risk that annuitants or pension scheme members live longer than assumed, has become a multi-billion-euro risk transfer market as defined benefit pension schemes seek to offload liabilities and insurers seek diversifying exposure to balance mortality risk elsewhere in their books. Buy-ins, buy-outs and longevity swaps each transfer risk in different ways, with implications for counterparty exposure, capital treatment and the residual role of the pension trustee or insurer ceding the risk.

Global reinsurers have absorbed a growing share of this risk through longevity swaps and reinsurance of bulk annuity books, concentrating longevity exposure among a relatively small number of highly rated counterparties. This concentration itself has become a supervisory watchpoint, since a shock to mortality improvement assumptions would affect multiple reinsurers' books simultaneously rather than being diversified away.

Buy-ins, buy-outs and longevity swaps compared

A buy-in is an insurance policy held as a scheme asset, matching specific member cashflows without transferring legal responsibility for benefit payments, while a buy-out fully transfers liability to the insurer and typically leads to scheme wind-up. Longevity swaps, by contrast, transfer only the longevity risk component while the scheme or insurer retains investment risk, making them attractive to parties who want to hedge survival risk specifically without altering their asset strategy.

Pricing differs materially across structures because buy-outs require insurers to hold full Solvency II technical provisions and capital for the transferred liabilities, whereas longevity swaps carry lower capital intensity for the risk-taker but introduce basis risk if the swap references a standardised index rather than the scheme's actual membership experience. Trustees need actuarial advice that reflects these capital and basis-risk trade-offs, not just the headline pricing quoted by insurers competing for the transaction.

Mortality improvement assumptions and basis risk

Mortality improvement assumptions, typically derived from population models such as the CMI model in the UK or equivalent national projections elsewhere, remain the central actuarial judgement in pricing longevity risk transfer. Since the pandemic, insurers have had to decide how much weight to give to 2020-2022 excess mortality data versus longer-term pre-pandemic improvement trends, with material pricing implications for transactions executed in different years.

Basis risk between a pension scheme's actual membership and the population or index used to price a longevity hedge can be significant where the scheme membership differs materially in socioeconomic profile, geography or occupation from national mortality tables. Index-based longevity swaps are cheaper and more liquid but leave schemes exposed to this basis risk, while bespoke, membership-specific hedges cost more but eliminate it, a trade-off that should be made explicit in trustee decision papers.

Capital and reinsurance market dynamics

Insurers writing bulk annuity business typically reinsure a substantial share of the longevity risk to specialist reinsurers, retaining a residual position they actively manage, which allows primary insurers to write larger volumes of business than their own balance sheet could otherwise support under Solvency II capital constraints. This reinsurance capacity is finite, and periods of high bulk annuity demand, as seen since UK gilt yields rose in 2022-2023, can create capacity constraints that widen reinsurance pricing.

Funded reinsurance structures, where the reinsurer also takes on asset management of backing assets, have drawn supervisory attention from the PRA and EIOPA over concerns about recapture risk and asset quality if the reinsurer experiences stress, prompting new supervisory expectations on how primary insurers assess and monitor these exposures on an ongoing basis rather than only at transaction inception.

Conclusion

The longevity risk transfer market has matured into a core tool for both pension de-risking and insurer capital management, but its growth has concentrated tail risk among fewer, larger counterparties, which deserves continued supervisory and market attention. Trustees and insurers alike benefit from clear-eyed assessment of basis risk and counterparty concentration rather than focusing solely on headline pricing.

Getting the balance right between cost efficiency and genuine risk transfer requires detailed scheme-specific analysis rather than generic market benchmarks. Jonas Adam Mohamed Osman, CEO of Quantica Risk, approaches longevity risk transfer advisory by quantifying basis risk explicitly for each transaction structure, so clients can see what they are actually retaining before signing.

Primary sources

longevity riskpension risk transferreinsuranceannuities