Pension longevity swaps allow pension fund Trustees to manage and mitigate the longevity risk faced by the pension scheme in a transparent, flexible, scalable, and cost efficient way, utilising Incorporated Cell Companies.
Pension fund Trustees have an obligation to manage and mitigate the risks faced by the pension scheme. One of the risks that has been increasing in recent years is longevity as people are living longer due to factors such as medical advances and more health-conscious lifestyles.
Longevity swaps have been around since 2008 but tended to be transacted with insurers or banks who then mitigated their risk through the purchase of insurance/reinsurance which inevitably added cost and complexity.
The reinsurance market remains competitive but the reinsurers themselves are only able to deal with regulated insurance companies and not directly with pension schemes. This has led to the formation of Incorporated Cells to enter longevity swaps.
Ability to continue to manage investments even when they are collateralised;
Transparency of structure;
More control and governance than a conventional swap or buy in/out;
Structure is scalable such that further swaps can take place in the future; and
Swap can be novated as part of a buy in/out strategy in the future.
There are two options for pension Trustees:
Set up an Incorporated Cell in a third-party ICC (such as Robus Insurance (Guernsey) ICC Limited); or
Set up an Incorporated Cell Company and then form Incorporated Cells for longevity swap transactions, which allows the pension Trustees to choose the Directors appointed.
David Riley manages Robus’ pension longevity swaps. He project managed a £3.4bn longevity swap which executed in 2017. The deal is thought to be the third largest longevity risk transfer for a UK pension scheme and the second largest using a captive structure. Around 7,500 members were covered under the transaction.
David would be delighted to discuss your requirements and answer any questions you may have regarding ICCs and pension longevity swaps. His contact details are: