Swiss Re have announced completion of a deal to insure the longevity risks associated with a pension fund run by the UK’s Royal County of Berkshire Pension Fund, a local government fund. Swiss Re say this is the first pure longevity risk transfer undertaken for any government body worldwide. The deal covers 11,000 pensions which corresponds to approximately 1.7B Swiss francs. While this doesn’t appear to be a capital markets transaction I felt it was worth highlighting as it demonstrates the growing acceptance of longevity risk transfer which means there has to be a role to play for alternative risk transfer. The full press release from Swiss Re is below.
Swiss Re announces first public-private longevity transaction, providing longevity risk cover to a local government pension fund in the UK
15 Dec 2009
London, 15 December 2009 – Swiss Re has entered into its first longevity transaction with a pension fund. With this transaction, Swiss Re will provide the UK’s Royal County of Berkshire Pension Fund (RBPF) with protection against the uncertainty associated with longevity risk on CHF 1.7 billion of pensioner liabilities.
Christian Mumenthaler, Swiss Re’s Head of Life & Health, commented: “We are very proud to announce this innovative transaction, because it is not only Swiss Re’s first longevity protection written for a pension fund, but the first pure longevity risk transfer written for any governmental body worldwide.”
The longevity contract transfers the longevity risk for RBPF’s existing pensioners through a straightforward insurance policy. It covers 11 000 pensions of the fund that were in payment on 31 July 2009. This corresponds to approximately CHF 1.7 billion of pensioner liabilities.
The RBPF pension fund pays regular premiums to Swiss Re according to a fixed schedule. Swiss Re insures the actual ‘floating’ annuity benefits to members, the cost of which depends on how long those pensioners live. The net result is that the RBPF continues to honour pension payments to its pensioners, but any future positive or negative deviation due to uncertain longevity is absorbed by Swiss Re. RBPF retains legal ownership of its assets and complete control over its investment strategy.
“We are pleased to have completed our first pension plan transaction so soon after expanding our activities to offer pension plans direct access to Swiss Re’s longevity capacity. This demonstrates our ability to take tried and tested solutions created for insurance clients and apply them to occupational pension plans,” said Costas Yiasoumi, who led the transaction on Swiss Re’s side.
Longevity: a growing business for Swiss Re
Continually rising life expectancies make longevity risk one of the biggest issues facing society. Demand from pension funds and life insurers for reinsurance has grown along with risk awareness. Yet private sector supply for longevity risk cover is still scarce.
“This creates big opportunities for Swiss Re as market leader in life and health reinsurance. We are now pioneering longevity solutions for public sector counterparties as well as private companies, allowing them to better control the uncertainty they face with respect to longevity risk,” added Christian Mumenthaler.