Abbey Life seals £1bn longevity swap for Manweb pension scheme

Abbey Life Assurance Company Limited (a subsidiary of Deutsche Bank) has completed a £1 billion longevity swap transaction benefiting the Manweb Group of the Electricity Supply Pension Scheme, part of Scottish Power UK PLC’s pension arrangements for subsidiaries.

This is the second longevity swap between Abbey Life Assurance and a section of the Scottish Power pension fund, with the pair having completed a £2 billion longevity insurance arrangement by way of a swap in 2015.

Law firm CMS Cameron McKenna LLP acted on behalf of the trustees of the Manweb Group of the Electricity Supply Pension Scheme during the negotiations and transacting of the longevity risk transfer arrangement.

Scottish Power UK PLC has, through its defined benefit pension schemes, a significant exposure to the financial risks associated with ongoing improvements in pensioners’ life expectancy (longevity risks).

This longevity swap transaction provides insurance covering the pension liabilities of around 4,000 members of the scheme and their contingent dependants.

The arrangement offers the Manweb Group with a hedge against the longevity risk associated with these members, thus securing an improved understanding of its future pension liabilities.

Commenting on the transaction, Maria Rodia, pension partner at CMS, said; “We are delighted to have worked with the trustees of the Manweb Group on this major longevity insurance transaction and the first for a scheme within the ESPS.

“This latest transaction follows on from ScottishPower’s longevity insurance agreement in respect of the ScottishPower Pension Scheme in December 2014, and demonstrates the strength of the UK longevity market. It further reinforces CMS’ leading reputation in this market, and that of our Life, Pensions and Longevity Risk Team.”

Mercer acted as lead advisor to the Manweb pension scheme for this longevity swap transaction and the firm explained that the swap involved a tri-partite longevity insurance policy, between the Electricity Pension Trustee Limited the Manweb Group Trustee and Abbey Life Assurance.

It’s not known at this time whether the longevity risk has been immediately backed up by a reinsurance transaction, or whether Abbey Life has retained the risk.

This is the first UK longevity swap arrangement of 2016 that Artemis has covered, with other longevity deals this year more focused on the reinsurance side of the equation.

However interest remains strong in longevity hedging and risk transfer, as UK and European pension schemes continue to grapple with the expectation that longevity will increase steadily, ramping up their liabilities in defined benefit pension schemes.

As a result insurance and reinsurance capacity are likely to be increasingly required as we move through the year once the mooted pipeline of longevity swaps begin to come to the surface.

View our directoy of major longevity swap, longevity reinsurance and risk transfer transactions.