Swiss Re protects first scheme from longevity risk

Edited by the Employeebenefitstalk editorial team Jan 15, 2010

Swiss Re will protect the Royal County of Berkshire Pension Fund (RBPF) against the uncertainty associated with longevity risk on CHF1.7bn (GBP1.02bn) of pensioner liabilities.

The longevity contract transfers the longevity risk for RBPF's existing pensioners through a straightforward insurance policy.

It covers 11,000 pensions of the fund that were in payment on 31 July 2009.

This corresponds to approximately CHF1.7bn of pensioner liabilities.

The RBPF pension fund pays regular premiums to Swiss Re according to a fixed schedule.

Swiss Re insures the actual 'floating' annuity benefits to members, the cost of which depends on how long those pensioners live.

The net result is that the RBPF continues to honour pension payments to its pensioners, but any future positive or negative deviation due to uncertain longevity is absorbed by Swiss Re.

RBPF retains legal ownership of its assets and complete control over its investment strategy.

Continually rising life expectancies make longevity risk one of the biggest issues facing society.

Demand from pension funds and life insurers for reinsurance has grown, along with risk awareness, yet private-sector supply for longevity risk cover is still scarce.