Global reinsurance giant Munich Re has completed a £1 billion longevity swap arrangement for the Willis Pension Scheme, in a longevity hedging deal that covers some 3,500 pension scheme members.
The transaction was undertaken using the Longevity Direct solution offered by Willis Towers Watson, which enables pensions to more directly access sources of reinsurance capital by using a cell captive as an insurance intermediating structure sitting between them and the reinsurer.
The £1 billion longevity hedging deal transfers the risk of pensions in payment, offering long-term protection against additional costs that arise because pensioners or their dependants live longer than expected.
The longevity risk was transferred to reinsurance firm Munich Re using a Guernsey based captive insurer that is fully owned by the Trustee of the Pension Scheme, established under Willis Towers Watson Guernsey ICC Limited, the brokers incorporated cell company structure.
The “ready made” incorporated cell company enables efficient and more direct access to the reinsurance market, without the need for a third-party insurance carrier to intermediate the deal.
We understand the Willis Pension Scheme covers employers of Willis Group, so employees of the insurance and reinsurance broking group prior to its joining with Towers Watson.
Ian Aley, Head of Transactions at Willis Towers Watson and lead adviser, explained, “The longevity swap market is currently very buoyant and represents an opportunity for pension schemes such as the Willis Pension Scheme to manage a material risk whilst retaining the flexibility to achieve the required investment returns to complete their journey plan. Completing this transaction despite some challenging circumstances following the recent lockdown demonstrates how collaborative working can deliver outstanding results”
Martin Lockwood, Head of Longevity at Munich Re, also said, “This transaction demonstrates Munich Re’s experience and commitment in the Longevity market and its ability to adapt to a challenging working environment.”
Peter Routledge, Chair of the Willis Pension Scheme, added, “I am delighted that the Trustee has taken a first and significant step to ensure that our members’ benefits are secured against future improvements in life expectancy, supplementing the Trustee’s wider risk management program to protect the Scheme against investment and demographic volatility. The transaction was concluded effectively, enabling us to access the longevity swap markets whilst pricing was attractive relative to Scheme funding. Having considered the options for accessing the reinsurance market we concluded that Longevity Direct offered the best value solution for our Scheme.”
Willis Towers Watson was lead advisor to the transactions. Travers Smith LLP, Carey Olson (Guernsey) LLP and Hengeler Mueller all provided legal advice to the Trustees. Lincoln Pensions Limited advised on the reinsurer financial strength. Sidley Austin LLP provided legal advice to Munich Re.
Willis Towers Watson has been the lead adviser on both longevity swap transactions completed in 2020 so far, amounting to £11 billion of longevity risk transferred, as well as £3.1 billion of bulk annuity transactions that have completed this year.
Read about many historical longevity swap and reinsurance transactions in our Longevity Risk Transfer Deal Directory.