A long-life solution

Swiss Re leads the way in protecting pension schemes against the risks associated with an ageing population.

It’s good news that people are living longer than expected in most countries. For example, in 1990 a UK 60-year-old woman was expected to live to the age of 84. In 2010, it’s over 88 and is expected to be over 90 by 2030*. But this has a major financial effect on corporate and public sector defined benefit pension plans, which promise to pay income for a member's lifetime.

Trustee concerns

“Underestimating life expectancy concerns many trustees and sponsors of these schemes,” explains Costas Yiasoumi of Swiss Re. “If assumptions about annual mortality improvements are out by just 1%, it could add as much as 5% to pension liabilities. That impacts member security and introduces a financial strain that needs funding.

“One way to protect the scheme is through hedging longevity with a third party. At Swiss Re, our solution stands out because it is written as insurance straight onto our balance sheet. We don’t act as an intermediary, selling on the risk to other insurers and investors. We can write this to balance sheet as a global, diversified organisation and –as the world's largest reinsurer of mortality – we have a natural, opposite position.

“This gives comfort to trustees regarding our commitment to this market,” Yiasoumi continues, “after all these are very long-dated solutions.”

Track record

Swiss Re recently had a major success in helping a UK public sector body address their pension plan longevity exposures. This adds to Swiss Re's strong track-record in longevity protection.

“As the market grows,” Yiasoumi concludes, “we’ll build on our leading position in mortality solutions to make sure that defined benefit pension schemes receive tailored, robust solutions based on sound and technical underwriting.”

*UK National Statistics, March 2010.