The Pirelli General Pension and Life Assurance Fund and the Pirelli Tyres Limited 1988 Pension and Life Assurance Fund agreed the swaps, worth £600 million in liabilities, with Zurich Assurance Limited, according to an August 31 statement from Mercer, lead adviser to the schemes’ trustees.
The swaps are run as “named life” insurance policies, meaning they cover around 5,000 named pensioners and contingent dependents.
Tony Goddard, pension manager at Pirelli, said in the statement: “Significant steps have already been taken to manage other risks in the funds. We are pleased to continue this process with these transactions and to seize the early opportunity to hedge longevity risk. The longevity swaps…also allow us to retain future investment flexibility.”
Pirelli appointed fiduciary manager Cardano to run some of its pension assets and liabilities in 2013.
For the latest deal, Zurich worked with Pacific Life Re to ensure capacity and streamlining of the process. The insurers and trustees worked with Mercer to create what the consultants have termed a “streamlined longevity solution”.
Goddard said this process allowed the schemes to insure relatively small amounts, compared to the larger deals – including a £1 billion swap by energy firm Manweb in August – that have so far been the mainstay of activity.
Pirelli is also preparing to transact a third streamlined longevity hedge, with a swap worth £50 million in pensioner liabilities, which is in the implementation phase.
Goddard said: “The pricing ultimately achieved was significantly more attractive than both our initial expectations and than that offered by alternative options.”
The deals come as longevity hedging activity has switched to the insurance market, which has been executing significant volumes of longevity reinsurance deals, rather than from pension schemes directly, according to Aon Hewitt’s round-up of UK pension de-risking activity in the first half of 2016.
In August, instead of using an insurer to hedge out its longevity risk, the Danish national pension fund ATP announced it had allocated around £1 billion from its asset pool to cover potential life expectancy improvements.