Transferring

Longevity Risks

Solutions for pension sponsors.

Longevity risk – essentially the risk that retirees will live longer than expected and require additional, unaccounted-for pension payments – is a serious risk that cannot be managed through investment strategy alone, particularly in times of economic fluctuation. Artex offers captive solutions to help mitigate this risk for pension schemes.

Iccaria Insurance ICC Limited

We formed Iccaria Insurance ICC Limited, an incorporated cell facility domiciled in Guernsey, in partnership with PricewaterhouseCoopers LLP (PwC). Iccaria is designed for middle-market pension schemes to enable them to use incorporated cells to transfer longevity risk to the reinsurance market. As reinsurers cannot underwrite contracts of insurance directly to the pension scheme, an efficient and cost-effective solution is for the pension scheme to establish a captive insurance company that assumes the longevity risk of the scheme. The captive then passes on the risk to the reinsurance market on a back-to-back basis; i.e., with no retained risk. The transaction is negotiated directly with the reinsurance market via the captive so that optimum pricing for the longevity risk being transferred can be obtained.

This facility works because the captive insurer, as a legitimately incorporated and licensed life insurer, can transfer the risk all the way through to the international reinsurance market, which meets both Guernsey and international reinsurance regulations. Guernsey, as an insurance domicile, is fully compliant with international insurance regulatory best practices and has a wealth of experience in insurance management, including legal, accounting and actuarial service provision. It is also within easy access of London, which is home to a number of international reinsurers with extensive capacity to provide to pension schemes.

Additionally, Iccaria as an incorporated cell company (ICC) provides segregation of assets and liabilities, as each incorporated cell is a separate legal entity. This is important because the pension scheme’s longevity reinsurer will require the transaction to be adequately ring-fenced to guarantee rights, obligations and collateral. If the program has more than one reinsurer, then multiple incorporated cells can be used. Additionally, ICCs enable a corporate group structure to be created with an incorporated cell (or a number of incorporated cells) to achieve ring fencing but with lower administration costs than a traditional group of stand-alone, non-cellular companies would incur.

Our Role as Insurance Manager

The Artex team adopts a proactive approach in working with a pension scheme and its advisors to develop the necessary understanding, infrastructure, communication channels and agreed working methods to create maximum efficiency and convenience for all. Our services include:

  • Company Formation and Licensing, including ownership and legal structure, selection of service providers, risk management framework, solvency and capital requirements and forecasting
  • Negotiation & Closing of the Transaction, including planning, pre-closing preparation, closing and fulfilment
  • Ongoing management and quality control, including a coordinated approach to manage the insurance business, maintain the books and records and ensure compliance with laws, regulations, codes and rules

Artex has considerable experience in working with pension longevity risks, having worked with BT Pension Scheme (BTPS) during 2014 to form its ICC, which subsequently completed the first-ever pension longevity captive transaction.

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