Munich Re closes longevity swap deal with Lafarge pension scheme
German reinsurer Munich Re has completed a longevity swap deal with the Trustee of Lafarge UK Pension Plan, the UK pension scheme of French industrial company Lafarge.
The arrangement is intended to reduce the Plan’s exposure to longevity risk, which arises when pensioners live longer than expected and thus claim more money on their retirement plans.
Lafarge identified longevity risk as the largest individual risk in its plan due to its focus on defined benefit (DB) schemes, which pay a pension based on a member’s final salary.
Transferring this risk to reinsurers via a longevity swap has been a popular option among UK pension schemes recently, as it allows them to hedge the risk of pensioners living longer lives.
Although details of the swap were not disclosed, Munich Re will have received a premium for taking on the exposure, and will make payments to offset the increase in liabilities of the plan if longevity turns out to be higher than assumed.
Roger Mountford, Chairman of Lafarge UK Pension Plan, said the swap represented an “important step” for the scheme that would work in conjunction with a renewed focus on the investment strategy of its DB sections to reduce volatility.
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