UK - Swiss Re has confirmed it was the counterparty behind a £750m (US$1.2bn) longevity swap with the Royal County of Berkshire Pension Fund.
The insurer said the deal with the local authority marked was the first pure longevity risk transfer written for any government body worldwide. It is the third such deal in the UK.
The contract transferred the longevity risk for RBPF's existing pensioners through a straightforward insurance policy. It covers 11,000 pensions of the £1.2bn fund that were in payment on July 31 and the insurance protection extends until the last individual dies.
RBPF will pay regular premiums to Swiss Re who in return will insure the actual floating annuity benefits to members. RBPF will continue to honour pension payments to its pensioners, but any future positive or negative deviation due to uncertain longevity is absorbed by Swiss Re.
RBPF will retain legal ownership of its assets and complete control over its investment strategy.
RBPF panel and pension fund advisory panel chairman John Lenton said: "Average life expectation continues to increase by at least one year every five years and the panels had become increasingly concerned at the consequent cost to the pension fund. For more than a year the fund had been seeking a means of meeting this growing cost."
Pension fund manager Nick Greenwood explained the transaction was the result of more than 12 months of intensive negotiation.
He said: "I am now looking forward to the challenge of covering the longevity risk associated with deferred and active members, but this would have to be on acceptable terms."
Osbourne Clarke advised the Royal County of Berkshire on the deal.
Partner Mark Womersley said: "From a legal viewpoint, this was a complicated contract, made all the more interesting by being the first carried out by a LGPS fund.
"With 2010 valuations on the horizon, it is a step that other LGPS funds would do well to consider."
This comes after RBPF appointed 10 new fund managers in April in a move to diversify its investments.
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