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Hannover Re in £3bn longevity swap with AXA UK Pension Scheme

18th March 2021 - Author: Matt Sheehan

Hannover Re has entered into a longevity swap transaction with the AXA UK Group Pension Scheme, which will protect £3 billion of mostly deferred pension liabilities held in the Scheme’s Defined Benefit plan.

handshakeThe swap, which closed on 27 February 2021, will form part of the Scheme’s investment portfolio, building upon previous transactions undertaken to protect pensions that had already come into payment by 31 March 2019.

When combined with previous swaps, nearly 93% of the pension scheme’s liabilities are now protected against the chance of members living longer than anticipated

“We have successfully teamed up with the AXA UK Group Pension Scheme and AXA UK to provide protection for its scheme members not yet in payment,” said Claude Chèvre, Executive Board Member at Hannover Re.

“We are more than happy to support our clients with risk capacity in areas where our clients particularly need our protection. Our long term expertise in the longevity market enables us to provide solutions for market segments otherwise difficult to place. This transaction proves once again Hannover Re’s capability and commitment to grow its global longevity business”

RMS

Stephen Yandle, Chair, AXA UK Pension Trustees, also commented: “I am happy that the AXA UK Group Pension Scheme has taken a further important step to ensure that our scheme members’ benefits are strongly secured against improvements in life expectancy.”

“De-risking the scheme will benefit all of our DB scheme members and will not affect any payments to members as they will continue to receive their pension as normal. This is a very positive step in providing additional security of members’ pensions.”

Vikram Chatrath, Head of Pension Strategy, AXA UK, further stated: “We are pleased to continue to support the AXA UK Group Pension Scheme by leveraging our internal technical and operational expertise to secure members’ benefits. The collaboration with Hannover Re in implementing a deferred longevity swap, believed to be the first transaction of its type entered into by a pension fund trustee, assists in stabilising the capital position of AXA UK and furthers our commitment to proactively managing our non-core business risks.”

The Trustee and AXA appointed Willis Towers Watson and Linklaters LLP as lead advisors to the transaction.

“This is the third longevity swap we have partnered with the Scheme on over the last 6 years,” said  Shelly Beard, Senior Director for Transactions at Willis Towers Watson and lead adviser.

“The speed at which this transaction was completed, even with the additional structuring considerations from including non-pensioners, demonstrates that once an initial longevity swap has been completed, additional transactions can be completed quickly and efficiently. The collaborative approach taken by the AXA UK, Linklaters and Hannover Re teams was also incredibly beneficial to the project.

“As well as removing the majority of the Scheme’s remaining longevity risk, the inclusion of non-pensioners is very helpful for the Scheme’s investment strategy as it provides increased cashflow certainty,” Beard continued.

“Whilst pensioner longevity swaps have become relatively common place in the UK de-risking market since we led the first deal in 2009, this is the first whole of life longevity swap covering a material volume of non-pensioners and we expect significant appetite from other pension schemes to replicate the structure.

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