Zurich in two longevity swaps for £600m of Pirelli pension liabilities

Insurance group Zurich has completed two longevity swap transactions with pension funds of the Pirelli group, between them covering £600m of pension longevity liabilities and with 75% of the risk transferred to reinsurance firm Pacific Life Re.

Zurich Assurance Ltd., the pensions and life related subsidiary of the global insurer, has entered into the two longevity swaps with the Pirelli General Pension and Life Assurance Fund and the Pirelli Tyres Limited 1988 Pension and Life Assurance Fund.

Zurich has retained 25% of the longevity risk associated with these swap transactions, but the remaining 75% was reinsured out to life and longevity reinsurance specialist Pacific Life Re.

The transaction was structured as a named life longevity swap, with Mercer providing advisory services to the firms involved.

Zurich said that this longevity swap uses the streamlined process it had established along with Mercer and a panel of reinsurance firms, enabling smaller UK pensions to access longevity swap capacity more cost effectively and quickly.

These are the second and third such streamlined longevity swap deals effected by Zurich, Mercer and the reinsurers, following the first such deal which also involved Pacific Life Re in December 2015.

Typicall these longevity hedges are structured as a whole of life insurance policy, which transfers the risk of rising costs associated with pensioners living longer than expected and covers named pensioners as well as their contingent dependents.

Simon Foster, Global Head of Zurich International Corporate Solutions, commented on the completion of this longevity swap; “We are delighted to have completed this transaction with Pirelli Group, which will help trustees of their pension schemes to hedge longevity risk for members and their dependants.

“This transaction shows how two pension schemes can be grouped together to provide scale and therefore obtain more attractive pricing terms. This in turn allows these schemes to efficiently manage their pension liabilities and hedge longevity risk cost effectively.

“These transactions represent a continued evolution in our longevity swap proposition, demonstrating an appetite to write larger transactions and also to retain longevity risk.”

Tony Goddard, a Pensions Manager at Pirelli group, also said; “We have been taking steps to manage other risks within the Funds and entering into this transaction has now enabled us to hedge our longevity risk at an attractive price and protects against the risk of members living longer than expected.

“The streamlined features of this longevity swap make this a cost-effective solution for the Funds, with features such as no collateral requirements and transparent insurer and reinsurer pricing being particularly attractive.”

These streamlined and more efficient longevity swaps can enable smaller pension funds to club together to access reinsurance capital, as seen in this case, in order to effect transfer of their liabilities. It’s expected that the pipeline for these deals will increase as the costs to transfer longevity risk come down.

View details of many historical longevity swap and reinsurance transactions in our Longevity Risk Deal Directory.