Advocate Kate Storey, counsel for corporate and
commercial at law firm Appleby in Guernsey, discusses how pension
schemes are using ICCs to transfer longevity risk.
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.
