Mercer, as lead advisor to the Trustees, announces today that longevity swaps have been agreed for both the Pirelli General Pension and Life Assurance Fund and the Pirelli Tyres Limited 1988 Pension and Life Assurance Fund (together the “Funds”) with Zurich Assurance Limited (“Zurich”).
These streamlined longevity hedges, structured as “whole of life” insurance policies, will hedge against the risk of rising costs as a result of the current pensioners living longer than expected. The hedges are “named life” meaning they cover around 5,000 named pensioners and contingent dependants. The total liability for these members is around £600m. Mercer acted as the lead advisor on the transaction, covering all aspects including feasibility, provider selection, accessing reinsurance capacity, structuring, contractual terms and implementation as part of a streamlined longevity hedge platform. Zurich worked with Mercer and Pacific Life Re under the streamlined process for operating an arrangement of this size.
Andrew Ward, lead transaction adviser and Head of Longevity Risk Management at Mercer, commented, “Mercer is delighted to have helped Pirelli to transact these longevity swaps. We worked closely with the Trustees and Sponsor to explore alternative risk management options, test feasibility, obtain competitive longevity reinsurance pricing and execute implementation.”
Tony Goddard, Pension Manager at Pirelli, added: “Significant steps have already been taken to manage other risks in the Funds. We are pleased to continue this process with these transactions and to seize the early opportunity to hedge longevity risk. The longevity swaps help to improve the security of benefits for all members by removing the uncertainty from members living longer than forecast. They also allow us to retain future investment flexibility. Mercer has done an excellent job in advising the Trustees. The pricing ultimately achieved was significantly more attractive than both our initial expectations and than that offered by alternative options. The streamlined terms also made implementation easier.”
Mr Ward added, “Before the creation of the Mercer Streamlined Longevity Solution, named life longevity hedges were transactable for only the largest schemes, but this deal illustrates that competitive longevity reinsurance pricing is now achievable for small and medium sized schemes. Longevity risk is arguably a greater concern to these schemes as they are more exposed to ‘concentration risk’ resulting from a greater variability in members’ life expectancy due to diverse pension amounts in smaller populations.
“This is an exciting development and there are other streamlined longevity hedges in the implementation phase including one of around £50m of pensioner liability,” Mr Ward concluded. “Smaller pension schemes can now benefit from a strong pre-negotiated standard longevity insurance contract developed between Mercer and Zurich with competitive pricing tension provided by the panel of longevity reinsurers who ultimately share the longevity risk.”
Notes to Editors
About Mercer
Mercer is a global consulting leader in talent, health, retirement and investments. Mercer helps clients around the world advance the health, wealth and careers of their most vital asset – their people. Mercer’s more than 20,000 employees are based in 43 countries and the firm operates in over 140 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global professional services firm offering clients advice and solutions in the areas of risk, strategy and people. With annual revenue of $13 billion and 60,000 colleagues worldwide, Marsh & McLennan Companies is also the parent company of Marsh, a leader in insurance broking and risk management; Guy Carpenter, a leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a leader in management consulting. For more information, visit www.mercer.com. Follow Mercer on Twitter @Mercer. In the UK, Mercer Limited is authorised and regulated by the Financial Conduct Authority.
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