Swiss Re Ltd., the world’s second-biggest reinsurer, sold Akzo Nobel NV a longevity insurance contract to cover the risk that 17,000 British pensioners live longer than expected.
The contract that takes effect from Aug. 1 covers 1.4 billion pounds ($2.2 billion) of liabilities and is the third-biggest sold by Zurich-based Swiss Re, said Rolf Tanner, a spokesman for the reinsurer. Swiss Re, which sold the world’s first longevity bond in December 2010, plans to hold the Akzo Nobel contract on its balance sheet, the company said.
“This is potentially very profitable but comes with an above-average risk,” according to Christian Muschick, a Frankfurt-based analyst with Sylvia Quandt Research, adding that Swiss Re has “solid expertise” in the field. “Many reinsurers are still very wary regarding longevity. Small mistakes can make a huge difference.”
Pension funds sitting on more than $23 trillion of assets are buying insurance against the risk their members live longer than expected. Swiss Re’s previous longevity contracts include $3.4 billion of liabilities for Friends Provident and 1 billion pounds at the Royal County of Berkshire Pension Fund.
“This transaction supports our ambition to de-risk our pension liabilities over time, at an attractive price without requiring additional funding from Akzo Noble,” said Keith Nichols, chief financial officer of the Amsterdam-based specialty chemical and coatings maker.