LONDON - German car maker BMW has offloaded 3 billion pounds ($4.6 billion) of longevity risk from its UK pension scheme to Deutsche Bank, in the largest longevity insurance transaction conducted to date.
The German bank's insurance subsidiary Abbey Life carried out the deal, which was structured with British specialist pension insurer Paternoster in which Deutsche is a shareholder, in order to cover the pension scheme liabilities related to approximately 60,000 pensioners.
Abbey Life will insure longevity risks on the BMW pension scheme and transfer a proportion of the risk to a consortium of reinsurers, including Hannover Re, Pacific Life Re and Partner Re, the bank said in a statement on Monday.
Hannover Re said separately it expects a premium from the deal of about 80 million pounds a year.
This transaction represents a ground-breaking precedent in the rapidly growing market for insurance against longevity risks, Ed Jervis, chief executive of Paternoster said in a statement on Monday.
BMW is not the only firm to have recently looked to the longevity swap market as a way of covering the risk posed by people living longer. Last May, Babcock International became the first British company to do such a swap deal using Credit Suisse as counterparty to hedge 500 million pounds.
Then in December Swiss Re undertook a longevity swap in a deal in the UK with the Royal County of Berkshire Pension Fund which was the first transaction by a public sector pension scheme. The longevity swap covered around 1 billion pounds of its pensioner liabilities.
A report by consultants Hymans Robertson on February 17 predicted the longevity swap market would hit $10 billion in 2010.
Hymans said it expected two other longevity swap deals worth well in excess of 1 billion pounds which were expected to close in the first half of 2010. Premier Foods have been reported to be in negotiations over a longevity swap deal covering around 2 billion pounds of Rank Hovis McDougall's pension scheme's liabilities, the report said.
Deutsche Bank is a member of the newly formed Life and Longevity Markets Association (LLMA). The LLMA wants to transfer the UK's 2 trillion pounds of pension liabilities to the capital markets to help pension schemes and insurers manage the financial pressure of increased life expectancy.
(Additional reporting by Frankfurt newsroom; Editing by Greg Mahlich)