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IPE special report May 2018

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Bentley UK fund agrees £400m longevity swap

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  • Bentley UK fund agrees £400m longevity swap

UK – Car manufacturer Bentley's pension fund has completed a £400m (€475m) longevity swap, transferring any risk for its pensioner population to Abbey Life.

The UK defined benefit fund finalised the deal in March, according to Aon Hewitt partner Matt Wilmington, who said the consultancy acted as lead adviser on the deal that began as a competitive tender.

"It's still a sizeable transaction," he said. "£400m is not a number to sniff at, but, relative to the other longevity swap transactions we've seen in the market, it is a lot smaller.

"Whereas perhaps previously if you'd gone to market with a £500m scheme you would find it difficult to find attractive prices and attractive terms, we definitely see that's now changed as the market has developed."

He said the market was "a lot more accessible" to a number of mid-range funds than it was even 12 months ago.

Previous longevity swaps have seen BAE Systems insure £2.7bn of longevity risk with Legal & General and Hannover Re, and Dutch chemicals giant AkzoNobel pass £1.4bn worth of risk directly to Swiss Re.

Wilmington said he could not comment on whether Bentley decided to pay for the transaction in a single lump sum, or if premiums would be staggered over a longer period.

However, he noted that several previous longevity transactions did not involve upfront payment, but rather the recovery of the cost over the lifetime of the swap.

He added that the deal had been under consideration for quite a while, and that the provider was able to offer trustees "exactly what was wanted" only recently.

As part of the deal, fund trustees and Abbey Life agreed jointly on a best estimate for the longevity of the pensioners, rather than relying on "less accurate" national averages, he said.

He also noted that while there had recently been discussions around the falling number of suppliers able to complete longevity swaps, increasing competition from reinsurers was able to compensate and offset what could otherwise lead to increased costs.

"There are probably 10 or 20 reinsurers globally looking to take on longevity risk, and we've seen a lit of competitive tension between the reinsurers, and therefore attractive pricing because of that," he said.

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