Dutch’s paint and chemicals group Akzo Nobel has signed a longevity insurance deal worth €1.75bn with Zurich-based Swiss Re, under which the reinsurer’s UK subsidiary ReAssure will write the UK pension funds of Akzo.
As per the agreement, the contract will provide coverage to 17,000 individuals and their future contingent beneficiaries who were members of the Akzo Nobel (CPS) pension scheme.
According to Towers Watson, the advisor involved in the transaction, the Akzo Nobel longevity deal with a reinsurer is the first between UK pension schemes and longevity risk providers in 2012 and the exposure would be included on Swiss Re’s balance sheet.
The contract will not only protect Akzo Nobel from the risk of increasing losses if its UK employees live longer than expected but will also cost the firm if life expectancies shorten.
Commenting on the cost to the firm, Akzo Nobel international pensions manager Jim Keane said that the prospect of unexpected shortening of life expectancies was less likely to occur.
"The record has been that the actuarial profession has consistently underestimated longevity, so we think on balance it’s a good deal," Keane added.
Major Banks such as UBS and Credit Suisse stopped offering such policies in the wake of the new Basel III rules, which may require the banks to hold additional capital against the risks.