20 April 2021New Captive Models

Guernsey braced for more pension longevity risk transfer deals after bumper year in 2020

Guernsey is predicting a busy year for pension longevity risk transfer deals, with interest in such structures surging in the last 18 months, according to Guernsey Finance.

All pension longevity risk solutions offered through Guernsey use an incorporated cell of a Guernsey incorporated cell company. In the last five years, a number of pension schemes of well-known companies have completed transactions, together worth in excess of £30 billion, through captive insurers based in Guernsey.

This includes three deals in 2020 alone, with a combined scheme value of more than £8 billion.

Guernsey Finance said there are currently a number of pension longevity risk transfer deals in the pipeline.

According to Guernsey Finance, one year of additional life expectancy can add 5 percent to pension fund total liabilities. Some pension funds are managing this risk by establishing a captive to insure its longevity exposure, before reinsuring 100 percent of the risk where rates may be lower.

Some use a captive as a stepping stone towards purchasing a bulk annuity at a later date, Guernsey Finance explained.

Kate Storey, partner at Walkers, the law firm, and chair of the Guernsey industry pensions de-risking group, said: "Guernsey is the market leading jurisdiction globally for captive solutions to hedge pension schemes' longevity risk, having been host to substantially more transactions of this type than any other jurisdiction and with an established track record dating back to the first deal in 2014."

“The first deal we saw completed through Guernsey is still the biggest, for British Telecom in 2014 at a value of £16 billion,” said Guernsey lawyer Christopher Anderson, Partner at Carey Olsen, the law firm which has advised on all the completed deals so far.

Anderson said Guernsey’s regulatory regime and its experience with cells and captive insurance make it the ideal jurisdiction for managing this exposure.

Guernsey will highlight its offering in this area at the upcoming Westminster and City 18th Annual Conference on Bulk Annuities from April 28-29.