Funding longer lives
Medical advances have helped increase life expectancy, but with this good news comes challenges in retirement financing. Swiss Re believes governments, insurers and pension funds should work together...
Insurer reduces risk in its employee pension fund
Leading UK insurer, Liverpool Victoria (LV=), has ensured its pension fund is less exposed to longevity risk thanks to a unique USD 1.3 billion transaction with Swiss Re.
Products protecting insurers and pension funds against the financial risk of retirees living longer than previously expected are becoming more common. However, all previous insurance transactions with pension funds were for people who have already started receiving retirement income.
By working closely with LV=, Swiss Re has provided insurance cover for 1,000 former employees who are yet to retire – a first agreement of its kind. This means that LV='s pension fund has transferred to Swiss Re the risk that 5,000 of its members aged over 55 live longer than expected.
In it for the long haul
As the transactions are very long dated – many 55-year-olds in the UK are expected to live to 90 or more* – it's essential that the party taking the risk is financially strong. This transaction is a further demonstration of Swiss Re's strong track record in the longevity market, which includes the 2012 agreement to cover one of AkzoNobel's UK pension funds against future rises in life expectancy for 17,000 of its members.
"Swiss Re has led the development of the longevity market," explains Alison Martin, Head of Life & Health Reinsurance. "We expect demand for longevity solutions to continue. We will remain selective in how we apply our longevity capacity to deliver customised solutions for our insurance clients."
*Office for National Statistics, 2012 – cohort life expectancy – high variation for female aged 55
Published 10 December 2012
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Medical advances have helped increase life expectancy, but with this good news comes challenges in retirement financing.