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ATP shifts more to hedging portfolio as life expectancy rises

ATP, Hilleroed, Denmark, has shifted 20 billion Danish kroner ($3.1 billion) into its hedging portfolio as a result of changes in life expectancy.

The assets were moved from the 768.5 billion kroner fund's investment portfolio.

The hedging portfolio had 677.3 billion kroner in assets following the move, with the remaining assets in the investment portfolio. The hedging portfolio is made up of bonds and interest-rate swaps.

The changes followed detailed data showing increased life expectancy leading to the need for adjustments to ATP's model, a news release provided by a spokeswoman said. Newborn boys born in Denmark are now projected to live 3.7 years longer than previous estimates, while newborn girls are expected to live almost two years longer.

ATP has been carrying out a thorough review of its life expectancy model, resulting in "crucial adjustments" to its model to provide a more accurate and robust estimate of ATP participants' life expectancies, the release said.

"We have expanded the method, and for the first time we included detailed data on, for example, causes of death that allow us to make an even more precise projection of future life expectancies," CEO Christian Hyldahl said in the release.

He added that 40% of girls born this year are expected to live to see their 100th birthday. Prior to the change, that figure was 33.2%. Of boys born this year, 29% are now projected to reach 100, up from 18.5%.

The main reason for the change in expectancy is that the U.S. has been removed from data sets, as the causes of death in the U.S. are "notably different" to what is seen in Denmark, the release said. Drug-related deaths are 5.5 times more likely in the U.S. than in Denmark while traffic accident-related deaths in the U.S. are 3.5 times more likely than in Denmark.

Data from the U.S. had accounted for 40% of the data set in the life expectancy model. Scotland and Luxembourg have been included in the data set now, as they have more similar life expectancy to Denmark. The data set consists of 330 million people.

"We are wise to use this new insight and modify our life expectancy model accordingly. It is good news that our best estimates now show that our members can expect to live longer than previously projected. Seen from my chair here in ATP, it is particularly good news that we are so well-padded financially that we can continue to fulfill the guarantees that we have given our members in relation to a lifelong pension while at the same time maintaining a funding ratio of 114.8%," Mr. Hyldahl said.