Deutsche Bank helps AstraZeneca secure £2.5 billion longevity swap

by Artemis on December 17, 2013

The AstraZeneca Pension Fund Trustee has entered into a longevity swap covering £2.5 billion of liabilities and approximately 10,000 of its pensioners with investment bank Deutsche Bank, passing the ultimate risk onto reinsurance firms.

This is the second large longevity swap transaction to come to market in recent weeks, after Deutsche Bank and Carillion announced a transaction covering £1 billion of liabilities a week ago, demonstrating growing interest in the risk transfer of longevity among pension funds.

AstraZeneca said that the swap transaction, which sees the ultimate risk transferred to global reinsurance firms via Deutsche Bank who act as a middleman in the deal, mitigates its pension funds longevity risk and helps to enhance the funds financial security.

This longevity swap transaction covers approximately 40% of the pension funds total longevity liability, according to Aon Hewitt who provided the fund with advice for the transaction.

Matt Wilmington, a partner at Aon Hewitt, commented on the deal; “It was clear during the negotiations for this transaction that the capacity and appetite of the global reinsurance market to take on pension fund longevity risk is ever-increasing.”

AstraZeneca’s pension fund trustees had been monitoring the longevity swap market for some time, according to Wilmington. The cost and benefit analysis finally stacked up and the fund decided that now was the right time to seek to transfer its longevity risks.

New reinsurers have been brought into the longevity risk transfer market with this deal, according to Wilmington, who said that there are now as many as 20 major reinsurers who want to take on longevity risk around the world.

Wilmington commented; “Together with Deutsche Bank we ran a competitive process, including the established reinsurers as well as a number of new market entrants, which has enabled the fund to transact at the best available terms.”

Total UK-based pension fund liabilities hedged with longevity swaps has now reached around £25 billion since the market emerged, according to Aon Hewitt.

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