EUROPE - Dutch paint and chemicals company AkzoNobel has insured £1.4bn (€1.7bn) of its UK pension scheme's longevity risk through Swiss Re, with Towers Watson praising the company for agreeing a contract directly with the reinsurer.
The contract, signed this week through UK subsidiary ReAssure, will apply for longevity increases that have occurred since the beginning of August last year - with a statement by the company stressing that the deal would not have any "material" effect on current funding arrangements.
Sadie Hayes, a senior consultant at Towers Watson advising the trustees on the transaction, said they did the right thing in "cutting out the middle man" and dealing directly with ReAssure.
She predicted interest in longevity insurance would continue to grow, especially as the deals became part of the mainstream.
"Some providers have recently dropped out of the market," she added, "but there is plenty of appetite from pension schemes that have been stung by changes to life expectancy in the past and want to protect themselves against this happening again."
AkzoNobel's chief financial officer Keith Nichols said the transaction supported the company's ambition to de-risk pension liabilities, while Richard Waterbury, chair of the pension trustees, said it removed uncertainty from funding or the scheme's reliance on the sponsor.
The £1.4bn, 60-year deal covers around 17,000 pensioners of AzkoNobel (CPS) Pension Scheme, addressing 40% of its liabilities as estimated in December last year.
Hymans Robertson, meanwhile, said the "flurry" of longevity swaps in recent months had been the result of deal pricing being highly competitive.
The consultancy's head of risk transfer solutions James Mullins said: "The competitive pricing is a result of significantly increased competition from reinsurance companies, as the number of reinsurers entering into these trades grew substantially over 2011 - including Munich Re, SCOR and Prudential US - all breaking into this market.
Mullins added that he expected market activity to exceed 2011's level of £7bn, with the potential development of an index-based longevity swap market allowing pension funds to remove the risk associated with younger, deferred members.
The scheme for glass manufacturer Pilkington recently completed a £1bn longevity insurance deal with Legal & General, with the UK insurer in turn transferring the risk to Germany's Hannover Re.
Other risk transfer deals in recent months have seen Pension Corporation completing a £160m buy-in for the Gartmore Pension Scheme, as well as Rolls-Royce agreeing a £3.5bn deal and UK broadcaster ITV finalising a £1.7bn deal in August.
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