LONDON, Dec 11 (Reuters) - Swiss Re won an 800 million pound ($1.3 billion) deal with the pension fund of British insurer LV to help it absorb the cost of members living longer than expected.
The so-called longevity insurance contract, which brings Swiss Re’s total of such deals to $12 billion, covers 5,000 LV pension fund members including 1,000 who have not yet retired, the reinsurance group said on Tuesday.
The deal, which runs for as long as anyone is drawing on the LV fund, means Swiss Re will take on the liabilities to pay the pensions of the fund’s members.
Pension funds like LV’s are looking for alternative ways to manage their liabilities as the chances increase of people living for up to 20 years after retirement.
At the same time, the yield on British government bonds, or gilts - a staple investment for UK pension funds - has slumped, making it more expensive to ensure expected returns to retirees.
Such trends are creating a lucrative opportunity for the likes of Swiss Re.
Pension funds and insurers have also been looking to capital market investors - such as soverign wealth funds and hedge funds - to help take on the cost of people living longer than expected by slicing and dicing longevity risk into tradable portions.
And Swiss Re is becoming a big player in this market. In December 2010, it sold a series of longevity-based catastrophe bond notes direct to capital market investors.
Elsewhere, Dutch life insurer Aegon in February struck a 12 billion euro deal with Deutsche Bank, which passed on most of Aegon’s longevity risk to capital market investors through private bond and swap placements, the biggest such transaction so far in Europe.