Two U.K. pension funds of Italian tire manufacturer Pirelli & C. SPA have agreed to longevity swaps covering £600 million ($784 million) of liabilities with Zurich Assurance.
The swaps cover liabilities across the Pirelli General Pension and Life Assurance Fund, and the Pirelli Tyres Ltd. 1988 Pension and Life Assurance Fund, both located in Burton-upon-Trent, England. Assets of the funds and the split of liabilities covered could not be learned by press time.
Zurich said in a news release Wednesday, that it retained 25% of the longevity risk, and reinsured the remaining 75% with Pacific Life Re.
“We have been taking steps to manage other risks within the funds, and entering into this transaction has now enabled us to hedge our longevity risk at an attractive price and protects against the risk of members living longer than expected,” said Tony Goddard, pension manager at Pirelli, in the news release.
The transactions have been customized for smaller pension funds, with no collateral requirements on the pension fund.
“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,” said Andrew Ward, Mercer's lead transaction adviser and head of longevity risk management, in a separate news release from the consultant, which was the lead adviser on the deal. “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.”
Mr. Ward was not available to comment further by press time. Spokesmen for Pirelli and Mr. Goddard could not immediately be reached for comment.