The Trustees of the Airways Pension Scheme have completed a £340 million longevity swap transaction with Metropolitan Tower Life Insurance Company, a subsidiary of MetLife, and Zurich UK.
This arrangement aims to help to mitigate the financial risks associated with increasing lifespans, as well as to enhance the long-term security for Scheme members, and transfer longevity risk in respect of active and deferred members in addition to those with pensions in payment.
Shelly Beard, WTW, lead adviser to the Trustees, said: “This transaction marks the latest step in the Trustees’ long-term strategy to manage risks in the Scheme and we were delighted to support with this, including working closely with the Trustees to design an innovative method for transferring non-pensioner longevity risk.
“This is the second longevity swap announced in 2024 covering less than £1bn of liabilities, and the fifth in recent years to include non-pensioners, which goes to show that hedging longevity risk in this way is an option available to schemes of all shapes and sizes.”
The transaction sees the Scheme transfer the risk of its members living longer than currently anticipated to MetLife. The deal is structured as a pass-through arrangement facilitated by Zurich UK.
This structure allows MetLife to assume 100% of the longevity risk, associated with around 1,100 members of the Scheme, while establishing a direct credit risk relationship between the Trustees and MetLife.
Jay Wang, Head of RIS Risk Solutions at MetLife, said: “MetLife’s history and extensive expertise in risk management positions us well to offer Airways Pension Scheme greater certainty in managing its longevity risk. We are pleased to have been selected as the reinsurance partner for this transaction.
“In line with MetLife’s New Frontier strategy, our financial strength, flexibility and strong track record in risk management underscores our commitment to supporting pension schemes and insurers manage their risk and our dedication to provide innovative and transformative solutions.”
This insurance policy will be added to the Scheme’s investment portfolio. It will generate income for the Scheme if members live longer than currently anticipated, which will increase the Scheme’s long-term stability and support its ongoing risk management strategy.
WTW served as the lead advisor to the Trustees of the Airways Pension Scheme, with legal counsel provided by Sackers and Kramer Levin. MetLife was advised by Eversheds Sutherland, and Slaughter & May provided legal counsel to Zurich UK.
Greg Wenzerul, Head of Longevity Risk Transfer at Zurich UK, stated: “We are delighted to have played a part in supporting the Trustees deliver this transaction, which provides a cost effective, straightforward and flexible (for the Trustees’ benefit) approach to hedging longevity risk.
“We believe that the standardisation available through use of the Zurich platform, which has now been used with the vast majority of longevity reinsurers, provides an opportunity for smaller schemes to transact in an efficient and increasingly standardised manner. We will continue to support and encourage the further development of this market, especially with many pension schemes and sponsors increasingly weighing up longer-term risk management pathways.”
