The Prudential Insurance Company of America (PICA), a subsidiary of Prudential Financial, Inc., has completed a longevity swap transaction with the HSBC Bank (UK) Pension Scheme.
The longevity swap is the second largest transaction ever completed for a UK pension scheme, and concerns the longevity risk in relation to c£7 billion of pensioner liabilities.
The new longevity insurance policy forms part of the Pension Scheme’s investment portfolio and is structured as an insurance contract with a HSBC-owned captive insurer in Bermuda, and onwards reinsurance to PICA.
Chair of the HSBC Bank (UK) Pension Scheme, Russell Picot, said: “I am delighted that the Trustee has taken an important step to ensure that our members’ benefits are strongly secured against improvements in life expectancy. This is a continuation of our de-risking journey and we are pleased to have completed the deal at attractive pricing and working in partnership with our sponsor. This is a positive step in providing additional security of members’ pensions.”
HSBC notes that the longevity arrangement provides the Scheme with long-term protection against costs resulting from pensioners or their dependents living longer that expected, while enhancing security for members of the Scheme, covering half of the pensioner liabilities.
James Calladine, Chief Risk Officer, HSBC Bank UK plc, said: “This transaction marks another sensible and positive step on the Scheme’s de-risking journey, with terms that make financial sense for both the Trustee and for the Scheme’s sponsor, HSBC UK Bank plc.”
Amy Kessler, Head of Longevity Risk Transfer at Prudential Financial, added: “PICA is delighted to support the Trustee in transferring longevity risk through this transaction, covering c£7 billion of HSBC pensioner liabilities. As the global growth accelerates in pension de-risking, our team remains fully committed to providing solutions which help pension schemes and insurers manage longevity risk using innovative structures tailored to meet their specific needs.”
While Nick Robinson, Director of Client Solutions, HSBC Bank plc, said: “HSBC has long supported the Trustee’s actions to manage risk. In this case we are especially pleased that we could offer HSBC’s own people and existing infrastructure, then work collaboratively with the Trustee and its strong Executive team to help develop and implement the chosen solution.”
Ian Aley, Willis Towers Watson, lead adviser to the Trustee, commented: “This transaction was the result of a thorough review of the Scheme’s risk exposures and the options for reducing these, complementing the Trustee’s ongoing de-risking programme. We worked with the Trustee to achieve a highly competitive reinsurer selection process, following which we guided the Trustee through the analysis to select a Bermudan captive as the most efficient structure for the deal, a market first.”
And Paul Philips, Sackers, legal adviser to the Trustee, added: “We are delighted to have assisted the Trustee in this transaction, which marks a significant development in the longevity market through both its size and the use of a Bermudan captive insurer.”
The Trustee was also advised by Kramer Levin Naftalis & Frankel LLP in New York and Appleby (Bermuda) Limited in Bermuda. HSBC in Bermuda was advised by Allen & Overy LLP, Aon and Appleby (Bermuda) Limited. PICA was advised by Willkie Farr & Gallagher LLP, and ASW Law Limited.