Latest big longevity deal reinsured

Another substantial deal has been completed that will see a large chunk of longevity risk held by pension schemes ultimately transferred into the reinsurance markets.

The deal is the result of the UK’s largest ever bulk annuity policy, which is being arranged between AkzoNobel’s ICI Pension Fund and Legal & General and Prudential Retirement Income to cover £3.6 billion of pension liabilities.

The two insurers will take on the buy-in, with Legal & General taking on £3 billion and Prudential the remaining £600 million. The insurers have sought to immediately reinsurer the longevity risk involved although details of this part of the transaction have not yet emerged.

Global reinsurers’ appetite for pension fund longevity risk is increasing rapidly leading to an increasing number of deals being done that transfer risk into this sector. The type of risk transfer is growing as pension funds become increasingly aware of the scale of this risk but also some of the risk transfer techniques available to hedge it. Equally, reinsurers are becoming more comfortable taking it on.

Total UK pension liabilities hedged using these contracts have now been valued at close to £25 billion. AkzoNobel said this deal represent roughly one-quarter of its pension liabilities and one-third of the ICI Pension Fund liabilities.

Keith Nichols, chief financial officer of AkzoNobel, said: “By purchasing these bulk annuities, the Trustee has taken a significant step in actively de-risking liabilities and reducing the risk that AkzoNobel will be required to contribute additional cash in the future.”

Clive Wellsteed, partner at LCP and lead adviser to the trustee said; “At £3 billion, this landmark transaction is the largest of its kind to date, with the Fund using its scale to negotiate competitive terms, reduce risk and enhance member security.  It demonstrates the appetite of mature final salary schemes to de-risk their pensioner liabilities and shows how transactions can be successfully structured at a scale not previously seen.”