Dutch pension fund manager PGGM is researching ways it can transfer longevity risk off its balance sheet, managing director Erik Goris said.
“What we’re looking into now is, if you differentiate between different groups of participants, what the cost would be of transferring this risk internally. As a second step, we’re going to test the cost to the market,” he said.
“We’re going to find out if there are natural counterparties willing to offer a fair price. We want to learn if it is more favourable to distribute risks internally or whether we will see a risk transfer for certain groups of participants,” Goris told GP.
PGGM manages the assets of the €90bn ($120bn) Pensioenfonds Zorg en Welzijn (PFZW).
Goris told delegates new actuary tables released in September showed the average coverage ratio for Dutch pension funds will take a six to seven percentage points hit because of increased longevity. Meanwhile, the government is considering proposals to allow pension funds to consider changes in longevity risk when agreeing to new and potentially existing pensions contracts.
However, Goris said a potential lack of suitable counterparties could make de-risking a costly endeavour.
“There is no longevity market as such at the moment in the Netherlands. Even if there were to be a longevity market in the Netherlands, we’re also concerned that we could not find sufficient natural counterparties... that have opposing risk to longevity that would be willing to take on this risk at a (fair) price. What we’re facing is a market of insurers, or reinsurers, that of course, will ask a hefty premium for such a risk,” added Goris.
The UK has seen the most activity in de-risking through buy-ins, where a pension plan purchases bulk annuities but keeps responsibility for the plan; buy-outs, where all risk, including longevity risk, is transferred to an insurer; and the use of customised longevity swaps.
However, the de-risking market is emerging in the Netherlands. In December, the Dutch pension fund of food manufacturer Hero completed a buy-in deal, the first of its kind in the Netherlands.
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