Guernsey has seen a big increase in pension longevity risk transfer deals over the past 18 months, which have continued despite Covid-19 uncertainty.
Over the past five years, several well established pension schemes have completed transactions, together worth in excess of £30bn, through captive insurers based in Guernsey.
Three deals with a combined scheme value of more than £8bn were conducted in 2020, and there are more transactions in the pipeline.
All solutions offered through Guernsey use an incorporated cell of a Guernsey incorporated cell company.
Kate Storey (pictured), Partner at law firm Walkers and Chair of the Guernsey industry pensions derisking group, said: "Guernsey is the leading jurisdiction for captive solutions to hedge pension schemes' longevity risk, having been host to substantially more transactions of this type than any other jurisdiction and with an established track record dating back to 2014."
Risk profile
Pension funds with defined benefit schemes are exposed to longevity risk – the risk that their pensioners live longer than predicted. One year of additional life expectancy can add 5% to pension fund total liabilities.
One solution for pension funds is to purchase a bulk annuity, but they might not always be available at favourable terms. Some are establishing their own captive insurance company to insure the fund’s longevity exposure and reinsure 100% of that risk into the life reinsurance market, where pricing may be lower.
A captive solution can also be a stepping stone towards purchasing a bulk annuity at a later date, as has happened with some Guernsey deals.
“The first deal we saw completed through Guernsey is still the biggest – for British Telecom in 2014 at a value of £16bn,” said Christopher Anderson, Partner at Carey Olsen, which has advised on all the completed deals so far.
“This certainly opened eyes to the possibilities of pension longevity risk transfer in this way. It’s fair to say the market just ticked over for the next few years, but we have seen a lot of activity in the past 18 months, with plenty more discussions in the pipeline.”
• A Guernsey delegation is taking part in the online Westminster and City 18th Annual Conference on Bulk Annuities on 28-29 April, discussing solutions and services on offer from the island. For more information on the event, click here