Home ListingSeptember 14, 2015

Brewery Seals £2.4B Longevity Swap

Aviva enters the longevity-hedging arena for the first time in a deal with Heineken’s UK pension.

Reported by Featured Author

Heineken’s UK pension has completed a £2.4 billion ($3.7 billion) longevity-swap transaction with Friends Life.

Swiss Re was the reinsurer for the deal, which covers 19,000 pensioners of the Scottish & Newcastle Pension Plan.

Neil Parfrey, UK head of pensions at Heineken, said the longevity hedge had “reduced a significant amount of the plan’s risk should the overall life expectancy of members exceed our projections”.

“Continued growth in the longevity-risk transfer market is inevitable.”“This should help bring peace of mind to plan members, and we are delighted that it has been achieved in a cost efficient manner,” he added.

Ian Aley, head of pension transactions at Towers Watson, which advised on the deal, said Heineken had “broken new ground” by partnering with Friends Life. It is the first time Aviva—Friends Life’s parent company—has entered the longevity hedging market.

The deal is the third—and largest—of its kind this year: ScottishPower sealed a £2 billion swap deal with Abbey Life in the first quarter of the year and the Merchant Navy Officers Pension Fund established its own wholly owned insurance subsidiary to help offload £1.5 billion of longevity risk.

Last week at a longevity conference arranged by the Cass Business School, Amy Kessler—head of longevity at US insurance giant Prudential—predicted that more markets outside of the UK would open up to this form of de-risking.

So far, hedging against life expectancy increases has not caught on outside of the UK, but Kessler told delegates that the $260 billion market would expand to new countries such as Germany, France, Switzerland, the Nordics, and Australia.

“Continued growth in the longevity-risk transfer market is inevitable,” Kessler said.

Prudential—along with several other insurance companies—is seeking to add longevity risk to its book of business to balance out the significant mortality risk it carries from its life insurance business. In June it agreed to reinsure part of Pension Insurance Corporation’s portfolio against longevity risk.