Hannover Re has agreed to take on the longevity risk from Legal & General of around 11,500 former employees of the UK glass manufacturer Pilkington, totalling around £1bn pension obligations
The reinsurer is to take over the bulk of the business, while the rest will remain with Legal & General. Only the biometric risk is assumed, not the investment and inflation risks, according to Hannover Re.
The firm anticipates premium income of roughly £800 million over the entire term of the transaction, with £60 million attributable to the 2012 financial year.
Hannover Re's CEO Ulrich Wallin said the transaction "cemented the firm's leading position in the attractive longevity risks market".
He also anticipated further opportunities as companies increasingly seek to limit their direct pension obligations.
The firm added that the assumption of longevity risks forms an attractive part of its risk management since they are negatively correlated with mortality risks and therefore aid diversification.
Since its first longevity block transaction in 1998, Hannover Re has assumed pension obligations of around 5bn euro.
Commenting on the Pilkington deal, which meant that 2011 was a record year for the de-risking market, Nick Griggs, head of corporate consulting at Barnett Waddingham, said:
"The longevity market seems to be gaining momentum which will hopefully bring greater standardisation to market. This will in turn allow a greater number of schemes to undertake similar deals. In time, smaller schemes may also be able to complete such a transaction.
"It has been suggested that insurers and reinsurers are currently quite keen to take on longevity swap deals to offset the mortality risks that already exist in their portfolio and as a result these transactions are being priced attractively. This issue needs to considered carefully as there are many other issues that can influence attractiveness of the pricing of these contracts."