Iccaria becomes Guernsey's latest longevity swap facility

12 February 2015

Artex Risk Solutions has joined forces with PwC to create a new facility which allows pension funds the opportunity to transfer their longevity risk cost effectively and directly to the reinsurance market.

Iccaria is a Guernsey domiciled Incorporated Cell Company (ICC), which not only offers pension funds the benefit of cost-effective risk transfer but also a flexible structure which enables pension funds to select the service providers they wish to use to administer the arrangements.

It is anticipated that pension schemes with liabilities as low as £250 million will now be able to benefit by using the Iccaria facility, whereas previously the market was unable to offer well-priced solutions for funds of this size.

Artex selected Guernsey as the domicile in which to establish Iccaria because of its excellent reputation and world-class regulatory regime, essential for capital efficiency.

Paul Eaton, New Business Director for Artex, said: "This is an exciting time for Artex and the captive industry as we move into an era where we are able to help pension fund clients hedge their longevity risk on a cost effective basis. For many years the captive industry has been providing clients with alternative risk transfer facilities, and this is another example of innovation being used to develop a bespoke solution to meet market demand.

"Working as the insurance manager on the industry's first pension longevity transaction to use a captive, whilst helping BT Pension Scheme establish its ICC in 2014, Artex is ideally positioned to support Iccaria. We are aware of the substantial market interest in this area and we are delighted to be working alongside PwC to offer a market-leading facility."

Paul Kitson, Partner in PwC's pensions team, commented: "Since the first pension scheme longevity swap in 2009 there have only been around four to five deals each year. Innovative new captive vehicles, such as Iccaria, mean that deal volumes could treble this year. Pension schemes that previously viewed longevity swaps as too expensive, or who thought they were too small to access this market, are likely to re-think their options given the changes in the market.

"PwC's pensions and captive experience, together with Artex's new captive vehicle, allows our pensions clients to transfer longevity risk at a much lower cost while retaining the flexibility over how the longevity hedge is administered.

"Now is a great time for any company looking to remove risk from their pension scheme due to the new longevity swap structures and attractive reinsurer pricing. Our experience on deals in 2014 shows that the cost of hedging longevity can often be lower than the funding reserves calculated by pension schemes. In addition to this, the door to the longevity swap market is now fully open for smaller pension schemes and in 2015 we expect a number of sub £100m transactions to take place for the first time."

Legal advice was provided by Bedell Cristin in Guernsey and Bedell Trust will act as independent trustee of the ICC. This is unique and gives the Iccaria structure independence and transparency from conflicts with its associated professional advisers and administrators, which is often an important consideration for pension scheme trustees.

Mark Helyar, Managing Partner of Bedell Cristin in Guernsey, said: "This is a really interesting period of development for our insurance sector - world leading innovations are exactly what is needed to stay ahead in a highly competitive international marketplace, and Guernsey is now the clear leader in pension longevity and reinsurance structuring. The counterparties involved in this structure are once again of the highest calibre and we are very proud to have played a leading role in bringing this new product to market."  

Artex - the captive management subsidiary of Arthur J Gallagher - acquired Heritage Insurance Management, the specialist captive and insurance management arm of Guernsey-headquartered Heritage Group, in May 2014. 

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