Global reinsurance giant Swiss Re has provided capacity to support a UK £3.7 billion longevity swap deal that uses a cell structure to intermediate the risk transfer for the ICL Group Pension Plan, one of the pension schemes of Fujitsu in the UK.
The longevity risk swap and reinsurance arrangement effectively transferred risk associated with 9,000 members of the pension plan, that the pensioners themselves or their dependants live longer than anticipated.
The Trustee of the ICL Group Pension Plan optimised the pricing of the risk transfer and made its access to reinsurance capital more efficient by using a platform offered by Insight Investment that provided a Guernsey captive insurance cell which was used as an intermediary insurer in the deal.
So, the Guernsey cell entered into the longevity swap arrangement with the pension plan, while Swiss Re simultaneously provided the reinsurance backing to the cell, completing the transfer of risk and smoothing access to the global reinsurance market for the pension.
Insight Investment also provides its services as the calculation agent for the longevity swap, collateral manager and collateral valuation agent, and provides reporting on the longevity transaction.
David Sillitoe, Chair of the Trustees for the ICL Group Pension Plan, commented on the arrangement, “By hedging the longevity risk associated with our pensioners, we have significantly reduced the overall risk in the Plan and improved security for all our members. Furthermore, attractive reinsurer pricing combined with an efficient approach to access the reinsurance market using a Guernsey based captive insurance company, has allowed us to remove this risk in a cost-effective manner.”
Serkan Bektas, Head of the Client Solutions Group at Insight Investment, added, “We are pleased to partner with the ICL Group Pension Plan as it takes the next step on its de-risking journey. This transaction has made broad use of Insight’s longevity platform, which we built specifically to facilitate the use of longevity swaps by pension schemes. Our aim is to pioneer flexible and efficient approaches to hedging longevity risk.”
Willis Towers Watson was the lead actuarial and transaction adviser to the Trustee for this longevity swap, while Gowling WLG LLP and Momentum Investment Solutions and Consulting providing additional legal and investment advice.
Matt Wiberg, Senior Consultant and longevity hedging specialist at Willis Towers Watson, said, “This transaction represents another exciting development in the longevity market, with the structuring of the swap through Insight Investment’s new intermediary platform. On behalf of the Trustee, Willis Towers Watson is delighted to have successfully implemented the swap using this structure and to have led the price and commercial negotiations, resulting in the removal of a substantial element of risk at an attractive price.”
Paul Feathers, Partner at Gowling WLG LLP, also said, “It was a pleasure to be a part of this significant de-risking milestone, which has been delivered by a huge team effort from all the parties and their advisory teams. The Gowling team is delighted for the Trustee, our long-standing client.”
This new deal takes 2021 longevity swap activity in the UK to around £12.7 billion, across the three transactions completed so far this year.
Read about many historical longevity swap and reinsurance transactions in our Longevity Risk Transfer Deal Directory.