German car maker BMW has insured its defined benefit (DB) pension scheme against risks related to the life expectancy of 60,000 pensioners.
The longevity insurance transaction, relating to £3 billion of pension scheme liabilities, is designed to protect BMW against financial risk.
Abbey Life, wholly-owned by Deutsche Bank, will insure longevity risks of BMW’s scheme while spreading a proportion of the risk to a consortium on reinsurers, including Hanover Re. The deal was arranged by insurance company Paternoster.
Ed Jervis, chief executive officer of Paternoster, said: “This transaction represents a ground-breaking precedent in the rapidly-growing market for insurance against longevity risks.”
Martin Bird, principal and head of longevity and risk solutions at Hewitt Associates, which advised on BMW’s longevity hedge arrangement, said: “Entering into a bespoke longevity hedge to mitigate against continued improvements in member life expectancy is a natural extension to the scheme’s current liability matching investment strategy and is designed to enhance further the security of members’ benefits.”
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