Pacific Life Re has announced the completion of a £10 billion longevity swap with Lloyds Banking Group, which it claims is the second largest transaction ever in the UK.
The transaction, which covers the longevity risk of pensioner liabilities, is structured as an insurance policy with Scottish Widows Limited acting as the insurer and onwards reinsurance to Pacific Life Re.
The policy will protect certain Lloyds Banking Group pension schemes from the financial risk of an unexpected increase in life expectancy and aim to make the schemes more secure.
“Pacific Life Re has been a long-term supporter of longevity risk transfer, having completed the first UK pension scheme longevity swap in 2009,” said Andy McAleese, Pacific Life Re, Head of Longevity.
“There have been record volumes of pension risk transfer in 2019 and we are continuing to see very strong demand carrying over into 2020,” he added. “This milestone arrangement demonstrates that longevity swaps continue to be an important risk transfer tool for pension schemes.”
Simon Bramwell, Pacific Life Re, Project Lead, also commented: “We are delighted to have worked with the Trustee and its advisors and, in particular, the level of clarity and engagement they brought to the process.”
“In a busy marketplace, being clear and decisive on data, terms and timescales gives everyone confidence in the process and has resulted in a positive outcome for all,” he explained. “I’d also like to thank CMS in providing direct and pragmatic legal advice, helping to ensure that a significant and complex transaction was completed quickly and efficiently.”
Thomas Lockley, CMS, legal adviser to Pacific Life Re, further stated: “A tremendous amount of credit should go to the Trustee, Scottish Widows and Pacific Life Re for completing a significant transaction in such an efficient and collaborative manner.”
Lockley continued: “It is a great example to the market of the risk capacity, advisor capacity and commercial will to negotiate and transfer complex risks in short timeframes. CMS are proud to have supported Pacific Life Re on the transaction.”
And finally, Ian Aley, Willis Towers Watson, Head of Transactions, said: “This material transaction is further evidence of pensions schemes’ appetite to manage longevity risk.”
“The longevity swap market is currently showing a huge amount of demand from pension schemes, and reinsurers like Pacific Life Re are certainly rising to the challenge through both innovation and record-breaking transaction sizes, as well as efficient execution.”