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Travers Smith advises on £1.4bn longevity insurance contract

Friday, 20 September 2019

Thursday, 24 May 2012

Travers Smith has advised long-standing client Akzo Nobel (CPS) Pension Trustee Limited (the "Trustee") as trustee of the Akzo Nobel (CPS) Pension Scheme (the "Scheme") in relation to a collateralised longevity insurance contract entered into between the Trustee and ReAssure Limited ("ReAssure"), a UK subsidiary of Swiss Re. The completion date was 23 May 2012, with risk transfer effective from 1 August 2011.

The purpose of the policy is to provide the Trustee with insurance protection in relation to longevity risk.  The Trustee is committed to payment of premiums by reference to an agreed model while ReAssure pays amounts equal to actual claims experience.

The actuarial value of the premiums is approximately £1.4bn, representing 40% of the actuarial value of the Scheme´s technical provisions as at 31 December 2011.

The Travers Smith team advising the Trustee was led by Banking and Corporate Recovery Partner Peter Hughes and Pensions Partner Philip Stear, supported by Financial Services and Markets Senior Associate Nigel Barratt, Banking and Corporate Recovery Associate Barry Newman and Pensions Associate Deborah Shumate.  Actuarial advice was given to the Trustee by Towers Watson.

The contract covers nearly 17,000 in-payment individuals (excluding children) at 1 August 2011 and their future contingent beneficiaries (excluding children) who were members of the CPS section of the Scheme.  Longevity protection extends until the last individual dies (or once claims reach a de minimis level).

Only large movements in longevity experience are collateralised under the contract and the Scheme is not required to post day-one collateral.

The insurance contract is another measure implemented by the Trustee as part of its long-term strategy to manage the risks associated with the Scheme.

Commenting on the transaction, Peter Hughes said:

"Risk reduction strategies are going to be increasingly important for the trustees of large occupational pension schemes and longevity insurance products offer a dynamic and powerful solution for managing significant actuarial risk.  We are very pleased to have advised the Trustee on this transaction and the involved series of negotiations to secure the best possible outcome for the Trustee."

ReAssure was advised by Clifford Chance.