RAC Pension Scheme in $900m longevity swap to SCOR

The RAC (2003) Pension Scheme has entered into a longevity swap transaction which sees $900 million (£600m) of its longevity exposure transferred to French reinsurance firm SCOR SE, removing one-quarter of the pension schemes longevity risk.

Hymans Robertson acted as lead advisor to the trustee of the RAC (2003) Pension Scheme and hails the transaction as the “first longevity swap to bring the benefits of avoiding intermediary costs to smaller scale transactions.”

As the longevity risk transfer market has developed, transaction structures have been made more efficient to remove the requirement for an intermediary insurer. This has been achieved through the use of captive, owned or special purpose insurer vehicles, which can be owned by the pension, or an adviser, and can enter into both the insurance and reinsurance side of the swap transaction much more cost-effectively for the sponsor.

The RAC pension scheme is sponsored by insurance group Aviva. Hymans worked with Aviva to facilitate the transaction, having worked together on Aviva’s own £5 billion longevity swap in 2014, which was brokered directly with the reinsurance market using Aviva Life as intermediary, rather than through a traditional intermediary.

The use of Aviva’s own insurer as intermediary meant that the risk can be transferred more directly from the sponsoring pension scheme through to the reinsurance market, to reinsurer SCOR SE.

Richard Wellard, lead advisor and a partner at Hymans Robertson, said; “The Aviva transaction in 2014 represented a step change in the market as pension schemes and their advisors innovated alternative structures to reduce overall costs. Having supported this ground breaking transaction, we are delighted to have extended this to the RAC (2003) Pension Scheme so that they have been able to remove a significant risk on terms that wouldn’t have otherwise been available. The strong relationship between the trustee and company was crucial to achieving this successful transaction.”

Jason Windsor, Aviva Group Chief Capital and Investments Officer, added; “We are pleased to be able to support the trustee and the members to further reduce risks in the pension scheme.”

James Mullins, head of risk transfer and a partner at Hymans Robertson, commented; “The team is delighted to have brought such an innovative structure to a sub £1bn longevity swap transaction and to achieve a great price for the trustees and sponsoring employer.

“This transaction is part of a trend whereby structures developed for the very largest pension schemes become more accessible for smaller pension schemes. We expect the level of innovation to continue to develop as longevity swaps become increasingly more common and attractive for a much wider range of pension scheme sizes.”

Richard Whitaker, chair of the trustees of the RAC (2003) Pension Scheme commented; “The trustee is delighted to have captured this opportunity to address one of the key risks facing the scheme in an efficient and cost-effective manner, supporting our wider risk management strategy.

“Hymans Robertson, Club Vita and Linklaters, working with Aviva, have brokered a transaction that would otherwise not have been available without the blueprint of the Aviva Staff Pension Scheme transaction, helping us remove a substantial risk from our scheme, at what the trustee believes is a good price.

“The clear advice provided by Hymans Robertson’s risk transfer team, in partnership with Club Vita and Linklaters enabled the trustee to make positive informed decisions throughout the process.”

As it becomes increasingly efficient for pension funds and schemes to access large quantities of capacity through more direct access to the reinsurance market it is expected that deal sizes will come down and the added efficiency will help smaller pensions to benefit from the longevity swap.

Read details of many recent longevity swaps, longevity reinsurance and longevity risk transfer transactions here.