The growing level of longevity risk faced by defined benefit pension schemes has been well documented and has led to pension schemes seeking solutions to manage this risk.

Such solutions have included pension buy-outs (for example, the General Motors pension buy-out arrangement with Prudential Financial Inc. in 2012), but more recently the trend has been towards longevity swap arrangements.

Typically in a longevity swap transaction the employer sponsor and/or the trustee of the pension scheme will agree to pay fixed monthly amounts to a financial institution or commercial insurer that in return makes variable monthly payments to the pension trustee.

The variable payments are calculated based on the pension amounts that the trustee is obliged to pay to the members of the pension plan. In this way, the risk of members living longer than anticipated (and the liability for pension payments subsequently being more than anticipated) now rests with the financial institution/ commercial insurer, which can then enter into a reinsurance arrangement with one or more commercial reinsurers.

However, using insurance intermediaries (commercial insurers and banks) in these risk transfer arrangements has become increasingly expensive. In response to this, the last year has seen two ground-breaking longevity swap structures being established in Guernsey using a captive insurance company in place of an insurance intermediary, thereby cutting out intermediary fees and removing the need for price averaging.

Read More

Share
Twitter LinkedIn Email Save as PDF
More Publications
30 Jul 2021 |

Fighting international fraud

First published in New Law Journal, July 2021. Appleby partners Anthony William and Jared Dann an...

Contributors: Jared Dann, Claire Corkish
20 May 2021 |

The Gender Pay Gap Debate – a response to comments on social media

As a lawyer the majority of articles we write are about a particular case or a legal issue – which...

4 May 2021 |

New Private Investment Funds in Guernsey

In December 2020, the Guernsey Financial Services Commission (Commission) published a consultation p...

Contributors: Oratile Jonas
16 Mar 2021 |

Guernsey Structures - The Cannabis Investment Conundrum

Jurisdictions around the world have adopted different positions in relation to the legality of the c...

12 Mar 2021 |

Material adverse change clauses in light of the Covid-19 pandemic

Experts from each of our key global offices provide jurisdiction specific advice and answer question...

8 Mar 2021 |

Appleby Celebrates International Women’s Day

International Women’s Day is celebrated annually in support of gender equality and equal participa...

23 Feb 2021 |

Fit and Proper in the Channel Islands – A Regulatory Enforcement Update

It is sometimes easy to forget with all that has happened over the last 12 months that there was a w...

27 Jan 2021 |

Levies, registration and all that jazz

Regulatory markets evolve at various speeds and the data protection regime is one example of a marke...

6 Jan 2021 |

Executors navigating the “perfect (company) storm”

Corporate governance has become one of the most hotly debated topics in recent years. Whether it be ...

Contributors: Paula Fry