The UK’s Royal County of Berkshire pension fund, who completed their first longevity hedge with Swiss Re back in December 2009, are looking to repeat the experience and have issued a request for proposals for a second longevity hedge. The 2009 transaction was the first time a public sector pension fund had looked to hedge its longevity risks and covered around £750m of their liabilities. That deal transferred the longevity risks of 11,000 in force pensions via an insurance contract to Swiss Re.
This second longevity deal will be designed to cover the longevity risks of pensioners who have retired since the first deal was transacted. It’s expected to be a much smaller transaction with figures of £100m being discussed, although Berkshire haven’t confirmed.
It will be interesting to see what how this second longevity risk transfer deal is structured. Judging by recent transactions it is more likely to take the form of a swap than a pure insurance contract. The Berkshire pension fund are known for being open to innovative capital markets approaches. We’ll update you if/when a deal is announced.