Marking its entry into the
longevity insurance segment of the UK’s defined benefit pension
scheme risk transfer market, Legal & General (L&G) has
finalised a deal with the Pilkington Superannuation Scheme
(PSS).
Under the agreement, L&G
has insured the PSS against the risk of 11,500 current pensioners
living longer than expected. About £1bn ($1.5bn) of associated
liabilities are involved.
The PSS deal follows
L&G’s recent closure of a buy-out deal with the trustees of the
Turner & Newall Retirements Benefit Scheme, Alexander Forbes,
worth around £1.1bn.
The deal is the largest
buy-out so far recorded in the UK market.
In the PSS deal L&G is
not taking the full risk on to its books. L&G has entered into
a longevity reinsurance agreement with Hannover Re, the details of
which from L&G’s perspective were not released.
However, Hannover Re, a
50.2%-owned unit of German insurer Talanx, has provided more
detail.
“Hannover Re is to take over
the bulk of the business, while the rest will remain with Legal
& General,” said the reinsurer in a release.
The reinsurer added that it
has assumed the biometric risk, not the investment and inflation
risks.
Hannover Re anticipates
premium income of about £800m over the entire term of the
transaction, with some £60m attributable in its 2012 financial
year.
“With this transaction we are
cementing our leading position in the attractive longevity risks
market,” commented Hannover Re CEO Ulrich Wallin.
“We anticipate good business
opportunities since it is likely that companies will increasingly
seek to limit their direct pension obligations.”
Hannover Re emphasised that
the assumption of longevity risks also forms an attractive part of
its risk management strategy.
This, the reinsurer
explained, is because longevity risks are negatively correlated
with mortality risks and hence promote better diversification of
the portfolio.
Hannover Re stated that
through its involvement in enhanced annuities its activities in the
area of longevity risks go back as far as the mid-1990s.
“Since concluding its first longevity block transaction in
1998, Hannover Re has assumed pension obligations totalling
altogether around €5bn [$6.4bn], concentrating primarily on the
blue-collar workers’ segment,” noted Hannover Re in its
statement.
