A "significant" increase in the number of longevity swaps will take place during 2014 and 2015 as a result of additional capacity and better pricing from the reinsurance market, Aon Hewitt has said.

From the reinsurance market alone there will be up to £100bn available capacity for pension scheme longevity risk over the next two years as a result of a more mature market.

Aon Hewitt said that this was a reflection of a market, which has developed significantly in the last year.

Then the longevity swap market started in 2009, there were only six reinsurance companies that were willing and able to offer these types of deals. Now there are 15-20 companies operating in this area, making the market bigger and more competitive and offering an opportunity for a broader range of pension schemes.

Martin Bird, Aon Hewitt senior partner and head of risk settlement, said: "In the five years since Babcock International closed the first deal with Credit Suisse, the longevity swap market has evolved significantly and is now able to offer increased capacity and better pricing for UK pension schemes.

"Originally, these deals were regarded as only right for a very few schemes which were typically very large and usually with an industrial or manufacturing company sponsor."

He said that 2014 and 2015 will show significant growth in the market, because of an increase in the competitiveness in the market and a reduction in transaction lead times as market structures start to become more streamlined.

Bird added: "As schemes continue to gain a deeper understanding of their longevity risk exposures, we see an increasing appetite across a broader range of schemes to make use of the competitive reinsurance market capacity."

First published 29.01.2014

monique_simpson@wilmington.co.uk