UK closed life and pension fund consolidator Phoenix Group has unwound its 2014 £900 million longevity swap transaction with the help of Aon Hewitt, shifting to an annuity arrangement which it received beneficial pricing on thanks to having the swap arranged in advance.
Aon Hewitt said this is the first unwinding of a longevity swap, which saw Phoenix’s own pension scheme, the PGL Pension Scheme, agreeing to transform the insurance terms of its longevity swap into a £1.2 billion annuity arrangement with Phoenix Life, adding the risk transferred.
The PGL Pension Scheme entered into the £900 million longevity swap transaction with its own insurer Phoenix Life Limited in 2014, simultaneously securing reinsurance for the longevity risk on a quota share basis.
With other de-risking steps taken using liability driven investment and illiquid asset strategies, the pension has seen favourable asset performance and successful liability management, helping it to enter into the largest bulk annuity purchase of 2016.
Aon Hewitt says that it was crucial that the longevity swap had been arranged in advance as this helped the annuity arrangements be negotiated on a favourable pricing basis.
The annuity arrangement had been tailored to the pension’s circumstances and included an all-risks cover for residual risks and a new collateral structure to back the annuity, giving Phoenix additional protection.
Dominic Grimley, Risk Settlement adviser at Aon Hewitt, commented; “Bringing so many elements of the scheme together in this way was a particularly rewarding experience. Reaching this point was only possible due to the hard work and belief from the trustee and employer, combined with strong stewardship of the scheme.”
The ability to enter into the annuity at favourable terms thanks to having a longevity swap already in place will be noted by other pensions, which may like to shift in this direction in order to maintain visibility and control of their liabilities with the help of reinsurance capital.