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Zurich signs GBP600m longevity transaction with Pirelli

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Pensions provider Zurich has entered two longevity swap transactions covering liabilities of GBP600 million for the Pirelli General Pension and Life Assurance Fund and the Pirelli Tyres Limited 1988 Pension and Life Assurance Fund.

Mercer acted as adviser on the transaction, which is structured as a “named life” longevity swap.
 
Zurich retained 25 per cent of the longevity risk, reinsuring the remaining 75 per cent of the longevity risk with Pacific Life Re.
 
A longevity hedge involves an insurer taking on the longevity risk of a section of a pension scheme. In the past, the cost and complexity of carrying out a longevity hedge has typically precluded smaller schemes from de-risking.
 
However, alongside Mercer and a panel of reinsurers, Zurich has established a set of streamlined processes that open up de-risking options to smaller and mid-sized UK DB pension schemes.
 
The transactions are the second and third streamlined longevity swaps that Zurich and its partners have carried out for smaller-sized DB pension funds.
 
A GBP90 million longevity swap was signed with an undisclosed UK pension plan in December 2015. This arrangement was the first named life longevity hedge for a small pension scheme and was fully reinsured.
 
Simon Foster, global head of Zurich International Corporate Solutions, says: “We are delighted to have completed this transaction with Pirelli Group, which will help trustees of their pension schemes to hedge longevity risk for members and their dependants.  
 
“This transaction shows how two pension schemes can be grouped together to provide scale and therefore obtain more attractive pricing terms. This in turn allows these schemes to efficiently manage their pension liabilities and hedge longevity risk cost effectively.
 
“These transactions represent a continued evolution in our longevity swap proposition, demonstrating an appetite to write larger transactions and also to retain longevity risk.”
 
Tony Goddard, pensions manager at Pirelli, adds: “We have been taking steps to manage other risks within the funds and entering into this transaction has now enabled us to hedge our longevity risk at an attractive price and protects against the risk of members living longer than expected.
 
“The streamlined features of this longevity swap make this a cost-effective solution for the funds, with features such as no collateral requirements and transparent insurer and reinsurer pricing being particularly attractive.”

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