Legal & General (L&G) has announced the completion of its first streamlined longevity transaction, covering approximately £300 million (US$387mn) of liabilities of an unnamed mid-tier pension scheme.
The deal is L&G’s first entry in the longevity insurance market for smaller schemes. According to L&G, to date, longevity swap deals have been limited for smaller pension schemes, with most typically being transacted alongside larger pension schemes.
The insurer notes that the deal is fully intermediated, with L&G reinsuring 100% of the transaction to global reinsurance firm SCOR.
Chris DeMarco, Managing Director UK Pension Risk Transfer, for Legal & General Retirement Institutional, commented: “This innovative transaction has allowed the scheme to use insurance to remove the risk to the scheme’s liabilities of its pensioner members living longer than expected, whilst still benefiting from any returns that it receives on the assets it retains.
“Smaller pension schemes often feel that the only insurance options they have are traditional buy-in or buyout structures. This transaction demonstrates that longevity insurance is a realistic option for most pension schemes, including for trustees whose schemes are not quite at the point they can enter into buy-in or buyout but want to manage their longevity risk.
“We were delighted to work with the Trustee, their advisers and the reinsurer on this case, providing not only a solution that works for this scheme, but which can also be easily replicated for other schemes in a similar position.”
According to L&G, the streamlined structure ensures that ongoing requirements for trustees are easy to manage, while it also keeps fixed costs down, which in turn ensures competitive pricing for this sized scheme.
The Trustee was advised by the scheme’s trustee advisors, insurance and reinsurance broker Willis Towers Watson, and Eversheds.
Matt Wiberg, Director at Willis Towers Watson and lead adviser on the longevity insurance transaction, added: “Willis Towers Watson, working with the Trustee and Company, identified that longevity was the key unhedged risk for the scheme.
“We were pleased to work alongside Legal & General to shape this new de-risking solution, which brings helpful competition to the smaller size longevity swap market, and allowed the Trustee to hedge longevity risk at a very attractive cost.”
