Deutsche Bank and Paternoster land largest ever pension scheme insurance deal
Deutsche Bank’s wholly-owned insurance company, Abbey Life, has announced today that it has executed the largest ever longevity insurance transaction. This transaction will provide the BMW (UK) Operations Pension Scheme with a hedge for life expectancy risks associated with nearly £3 billion of pension scheme liabilities related to approximately 60,000 pensioners.
Abbey Life utilised the proprietary longevity modelling techniques and structuring expertise of Paternoster, the specialist pensions insurer in which Deutsche Bank is the largest shareholder. Through the transaction, Abbey Life will insure longevity risks of the BMW pension scheme while spreading a proportion of the risk to a consortium of reinsurers (including Hannover Re, Pacific Life Re and Partner Re). Unlike other longevity products, Abbey Life’s longevity hedge has been constructed to provide the flexibility to adjust the specific benefit structure and hence better match the longevity risk of the scheme.
BMW chose to insure this risk in order to protect the sponsor against a financial risk in its UK pension scheme.
Nardeep Sangha, CEO of Abbey Life said: “In bringing this leading solution to BMW and its UK pension scheme, we have demonstrated our ability to combine our balance sheet strength and internal expertise with the specialist pensions and longevity know-how at Paternoster to bring about a landmark transaction. As this market develops we are committed to providing innovative solutions to UK pension schemes. ”
Rashid Zuberi, Abbey Life's Chief Risk Officer and Head of Complex Life and Pensions Management at Deutsche Bank said: “We are extremely proud of the hedge we designed in conjunction with the scheme’s trustees and their advisers, Hewitt. Through the utilisation of innovative structuring and reinsurance capacity we have been able to manage the overall risk of the transaction to deliver a cost effective way for the scheme to mitigate a large and complex risk. With this latest transaction, Deutsche Bank demonstrates that it now offers pension schemes the most comprehensive range of risk management solutions in the market.”
Ed Jervis, CEO of Paternoster said: “UK pension schemes are increasingly looking to reduce risk and increase security for their members through the use of insurance solutions. This transaction represents a ground-breaking precedent in the rapidly growing market for insurance against longevity risks and is a demonstration of the flexibility and innovation which Paternoster continues to bring to this market. The complexity of a transaction this size should not be underestimated and is only possible through a combination of highly specialised skills, flexibility and, above all, a thorough understanding of the trustees’ objectives.”
Martin Bird, Principal and Head of Longevity & Risk Solutions at Hewitt Associates 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. We have worked closely with the trustees to run a competitive tender process and to ensure that the product structure is right for the scheme. This transaction sets a new benchmark for managing longevity risk and will pave the way for a number of schemes to follow suit. With a continued focus on pension risk management, we expect to see the market for similar transactions scale new heights in 2010.”
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About Deutsche Bank
Deutsche Bank is a leading global investment bank with a strong and profitable private clients franchise. A leader in Germany and Europe, the bank is continuously growing in North America, Asia and key emerging markets. With 77,053 employees in 72 countries, Deutsche Bank offers unparalleled financial services throughout the world. The bank competes to be the leading global provider of financial solutions for demanding clients creating exceptional value for its shareholders and people.
About Abbey Life
Abbey Life is an FSA-regulated life company with a 48 year history in life insurance, pensions and annuities management. Abbey Life was acquired from Lloyds TSB in 2007 and is now wholly owned by Deutsche Bank AG. Its £10.7bn insurance portfolio includes £8.0bn of unit-linked business and £1.8bn of annuities in payment to approximately 120,000 annuitants.
There is currently capital in excess of £500m within Abbey Life’ long-term and shareholder’s fund to support its technical provisions, of which c.£165m is required to meet its capital resources requirement.
Paternoster is an FSA regulated insurance company specialising on the risks associated with companies’ final salary/defined benefit pension schemes.
Its sole focus is on providing tailor-made solutions for pensioners, their employers and trustees. Its objective is to ensure long term security for scheme members whilst delivering the highest level of customer care.
Paternoster was authorised on 27 June 2006 after securing £500 million of equity financing from a number of institutions (including Deutsche Bank and Eton Park International LLP).