Hannover Re will re-insure the majority of 3.2 billion pounds ($4.9 billion) in U.K. pension liabilities of Legal & General Group Plc against the risk of retirees living longer than expected, in the German company’s biggest such deal.
Hannover Re will get about 2.2 billion pounds in premium income, including 100 million pounds for 2013, from helping Legal & General bear risks for the policies, the Hanover, Germany-based reinsurer said today in a statement.
Hannover Re will bear the “biometric risk” of retirees drawing pension payments for more years than anticipated rather than investment performance risks, it said. Such swaps diversify the company’s portfolio because they are “negatively correlated with mortality risks,” Chief Executive Officer Ulrich Wallin said in the statement.
In 2010, Hannover Re and other reinsurers helped Deutsche Bank AG’s Abbey Life buy almost 3 billion pounds in U.K. pension liabilities covering about 60,000 policy-holders working for carmaker Bayerische Motoren Werke AG. Hannover Re assumed almost half of the transaction’s longevity risk.