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Longevity Swap: Deutsche Bank to hedge Rolls-Royce Pension Fund

Deutsche Bank has entered into a longevity swap with the Trustees of the Rolls-Royce Pension Fund. Under the agreement, Deutsche Bank will hedge the longevity exposures of the scheme

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Deutsche Bank has entered into a longevity swap with the Trustees of the Rolls-Royce Pension Fund. The contract reduces the longevity risk on approximately £3bn of the fund’s liabilities. Around 37,000 pensioners are covered by this agreement.

The longevity swap is the latest measure implemented as part of the long-term strategy to manage the risks and uncertainties associated with the scheme. The longevity swap gives greater certainty to the future funding requirements of the scheme, enhancing the security of members’ benefits.

Under the agreement, Deutsche Bank will hedge the longevity exposures of the scheme, passing on the risk to a syndicate of reinsurers. Andrew Reid, Managing Director and European Head of Pensions Origination, Deutsche Bank, said: “Deutsche Bank has shown clear leadership in this growing market. Our team from across the Corporate & Investment Bank combined structuring expertise with Deutsche Bank’s balance sheet strength to deliver a cost effective solution for the Rolls-Royce Pension Fund.”

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Deutsche Bank’s Longevity Markets Group, headed by Roger Douglas and Michael Amori, and its Longevity Structuring Group, headed by Ron Lin, arranged the swap.

Aon Hewitt was lead advisor to the Trustees on the transaction. Martin Bird, Managing Principal at Aon Hewitt, said: "The Rolls-Royce Trustees entered into the swap to further enhance the security of all the members’ benefits. We worked closely with the Trustees to decide that this was the right approach for them to take and also that the swap was structured in a way that offered the best possible terms on price, security and other key longevity hedge features."

In February 2010, Deutsche Bank’s subsidiary, Abbey Life, wrote longevity insurance with the BMW UK Pension Scheme for nearly £3 billion of pension scheme liabilities affecting around 60,000 pensioners.

However, the figures of longevity swap market remains opaque. Deutsche Bank does not provide an estimate of its market share, or annual volumes.

JP Morgan, another player on the field had launched an index designed to standardize the market. This index could be used in particular for longevity swaps.

Yann Olivier , November 2011

Article also available in : English EN | français FR

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