JP Morgan has acquired the risk of people living longer than estimated to hedge for a company’s working member’s pension plan.
In a statement issued recently, JP Morgan said based on the future value of its Life-Metrics Longevity Index – a toolkit developed by the company to measure mortality and longevity risk for the population of Germany, the Netherlands, the US and England and Wales, it executed a swap contract with the trustees of Pall UK Pension fund.
“Index-based hedges are particularly well suited to hedging the longevity risk of pension plans with significant deferred and active members”, said head of longevity structuring at JP Morgan, Mr. David Epstein.
JP Morgan will act as the hedge provider and custodian for the scheme and cover liabilities worth £120 million for about 1,800 British employees. The Pension Fund was set by Schroder.
According to data available with specialist insurer Pension Insurance Corporation (PIC), only a handful of longevity swaps have been granted permission in Britain, only around £8 billion in the last five years.
The biggest deal till date was signed between carmaker BMW and Deutsche Bank’s insurance arm Abbey Life – when BMW transferred British Pension risks worth £3 billion from its balance sheet.
JP Morgan said that previous deals had solely focused on pension plan members who had already retired as hedging against higher life expectancy of employed members were difficult to measure.
The deal with the trustees of the Pall Pension fund provides the fund with an index-based longevity swap option wherein if the life expectancy of members improves at a faster rate than estimated in a 10 year span, then the fund receives an insurance payout.