Swiss Re announces first public-private longevity transaction, providing longevity risk cover to a local government pension fund in the UK
15 December 2009, London
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.
Notes to editors
Swiss Reinsurance Company Ltd
Swiss Re is a leading and highly diversified global reinsurer. The company operates through offices in more than 20 countries. Founded in Zurich, Switzerland, in 1863, Swiss Re offers financial services products that enable risk-taking essential to enterprise and progress. The company’s traditional reinsurance products and related services for property and casualty, as well as the life and health business are complemented by insurance-based corporate finance solutions and supplementary services for comprehensive risk management. Swiss Re is rated “A+“ by Standard & Poor’s, “A1” by Moody’s and “A” by A.M. Best.
Royal County of Berkshire Pension Fund (RBPF)
The Royal County of Berkshire Pension Fund (RBPF) is part of the Local Government Pension Scheme (LGPS) and is administered by the Royal Borough of Windsor and Maidenhead (RBWM) on behalf of the six unitary authority employers and nearly 100 other employers.
Pensioner liability figure of CHF 1.7 billion
This represents the approximate value as at 31 July 2009 of the pensioner liabilities covered by the insurance policy determined using Swiss Re’s economic value measurement (EVM) methodology. Under EVM cashflows are discounted using risk free rates. It allows for current GBP to CHF exchange rates.
For the purposes of determining stable long term pension financing cost by RBWM the pension plan liabilities are assessed triennially using an approach that focuses on long-term assumptions advised by its actuary. Assumptions consistent with those used in the 2007 triennial fund assessment result in a valuation of approximately GBP 750 million for those pension liabilities.
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