Insurers reduce risk in their employee pension funds

Products protecting insurers and pension funds against the financial risk of retirees living longer than previously expected are becoming more common – and primary insurers are leading the way.

Renowned global insurer, Aviva, recently selected Swiss Re as a reinsurer of liabilities for pensions in payment within its UK staff pension plan. This provides peace of mind that protection is in place to cover the retirement income for 19,000 members no matter how long they live, thanks to Aviva working with Swiss Re and two other reinsurers.

This is the largest longevity transaction with a pension plan to date and the second involving an insurer working with Swiss Re.

A unique approach

In December 2012, leading UK insurer, Liverpool Victoria (LV=), ensured its pension fund is less exposed to longevity risk thanks to a unique USD 1.3 billion transaction with Swiss Re.

All previous insurance transactions with pension funds were for people who have already started receiving retirement income. By working closely with LV=, Swiss Re provides insurance cover for 1,000 former employees who are yet to retire. This means that LV='s pension fund has transferred 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. These transactions are a further demonstration of Swiss Re's strong track record in the longevity market, which includes the 2012 agreement to cover 17,000 members of one of AkzoNobel's UK pension funds.

"Swiss Re has led the development of the longevity market," explains Thierry Léger, Global Head of Life & Health Products."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


Updated 4 March 2014

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