Two Pirelli pension funds have agreed a pair of longevity transactions with Zurich Assurance Limited worth a total of £600 million (€707 million), according to consultancy Mercer, which advised the pension funds.
Longevity transactions are used to hedge pension funds against the risk of rising costs as a result of pensioners living longer than expected. Mercer said the hedges are ‘named life’, which means they cover around 5,000 named pensioners and contingent dependants. The total liability for these members is around £600 million (€707 million).
Zurich worked with Mercer and Pacific Life Re in order to operate this arrangement, which historically was available only to larger pension schemes.
Commenting on the deal, pension manager at Pirelli Tony Goddard said: ‘The pricing ultimately achieved was significantly more attractive than both our initial expectations and than that offered by alternative options. The streamlined terms also made implementation easier.’
Lead transaction adviser and head of longevity risk management at Mercer, Andrew Ward, added that the deal illustrated that longevity reinsurance pricing, historically available only to larger schemes, was now also achievable for small and medium sized schemes.
Ward said that Mercer had other longevity hedges deals with smaller pension funds in the pipeline, including one of around £50 million (€59 million) of pensioner liability.
‘Smaller pension schemes can now benefit from a pre-negotiated standard longevity insurance contract developed between Mercer and Zurich with pricing tension provided by the panel of longevity reinsurers who ultimately share the longevity risk.’
