Swiss Re in £1.4 billion longevity insurance deal for AkzoNobel’s UK pension fund

Reinsurer Swiss Re has announced the completion of a £1.4 billion longevity insurance transaction for one of AkzoNobel’s UK pension funds. The collateralised re/insurance deal was written through Swiss Re subsidiary ReAssure Ltd. The transaction covers 17,000 individuals and their future contingent beneficiaries who were members of the AkzoNobel Pension Scheme at the 1st August 2011.

Swiss Re say that they are the only insurer to have successfully deployed such large net capacity to take on longevity risks directly from a pension fund. They say that this deal shows that both pension funds and insurers are getting more comfortable with longevity solutions and this highlights Swiss Re’s ability to put its large net capacity to work by creating longevity solutions for both public and private sector clients.

Costas Yiasoumi, Head Longevity Solutions, Swiss Re Corporate Solutions, said; “We are proud to once again take the lead in longevity insurance. We offer a unique proposition. Whereas the UK pension longevity market tends to be dominated by intermediaries who write and then sell on the exposure, this deal stands out in that all of the longevity exposure is held on our own balance sheet.”

Alison Martin, Member of Swiss Re’s Group Management Board and Head of Life & Health, added; “The pension funds of corporate and public sector organisations are gaining a better understanding of the potential risks arising from their longevity exposures. As a natural home for longevity risk and with a track record in innovation, Swiss Re is in a unique position to engage directly with these funds and create the solutions they need.”

“Our strong mortality position means that Swiss Re has capacity to take on more longevity risk, and maintain our position as the re-/insurer of choice in the UK and abroad,” Alison Martin continued.

AkzoNobel and the trustees chose Swiss Re having evaluated proposals from different counterparties.

Costas Yiasoumi said; “Longevity contracts are very long-dated and pension fund trustees need counterparties that are in this market for the long haul. As a well-diversified re-/insurer with a 150-year track record, we were able to give AkzoNobel, the pension plan trustees and its advisors the necessary confidence for the long-term.”

Lawfirm Travers Smith advised the Akzo Nobel (CPS) Pension Trustee Limited in relation to this collateralised insurance transaction between the pension fund and ReAssure Ltd. The completion date of the deal was the 23rd May but cover is effective from the 1st August 2011. The £1.4 billion of premiums represents 40% of the actuarial value of the scheme they said. Only large movements in longevity experience are collateralised under the contract and the Scheme is not required to post day-one collateral.

Travers Smith corporate recovery partner Peter Hughes said; “Risk reduction strategies are going to be increasingly important for the trustees of large occupational pension schemes and longevity insurance products offer a dynamic and powerful solution for managing significant actuarial risk. We are very pleased to have advised the Trustee on this transaction and the involved series of negotiations to secure the best possible outcome for the Trustee.”

Towers Watson gave actuarial advice to the pension fund trustee.

Keith Nichols, CFO of AkzoNobel, said; “This transaction supports our ambition to de-risk our pension liabilities over time, at an attractive price without requiring additional funding from AkzoNobel. We have been working with the trustees of the Courtaulds Pension Scheme on this specific opportunity to reduce longevity risk. The contract will help protect AkzoNobel against the exposure of life expectancy risks.”

Richard Waterbury, Chairman of the Pension Scheme trustees, added; “As our members live longer, entering into this contract makes their benefits more secure by removing uncertainty from future funding arrangements, thus reducing our reliance on the company. Our pensioners will continue to receive the same pensions and the same annual increases as they do currently.”

This deal is further evidence of the scale of the longevity risk transfer market and see’s Swiss Re assume another huge chunk of this risk. The longer this kind of risk transfer through re/insurance continues the more likely it is that a longevity bonds (or insurance-linked securities) market will be created.