Bentley pension scheme in £400m longevity swap with Abbey Life

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The smallest longevity swap deal that we’ve seen has been completed, according to an article on Professional Pensions today. The £400m longevity risk transfer deal hedges the risk of pensioners living longer for luxury car manufacturer Bentley’s UK pension scheme. The size of the deal shows that longevity swaps can be transacted for smaller pension plans and suggests that costs to get a longevity swap to market may be coming down.

According to Professional Pensions the Bentley longevity swap involves Deutsche Bank’s subsidiary Abbey Life, with whom the longevity exposure associated with £400m of pension liabilities has been hedged. The deal was advised by Aon Hewitt and CMS Cameron McKenna and Travers Smith acted as legal advisors.

The Professional Pensions article suggests that the transaction took six months to complete, but Bentley had actually been looking into a longevity swap as far back as 2011, according to this FT article which at the time said Bentley was close to closing a smaller longevity swap deal. This shows that the time to market for these transactions can be a long road, particularly for a smaller pension scheme.

With this being the smallest longevity swap on record, as far as we’re aware, it does perhaps show that the market is beginning to mature enough to enable smaller pension schemes to transfer their risk. Anecdotally we’re told that frictional and transactional costs have reduced slightly as longevity swaps such as this begin to become a little more commoditised and standardised. However, there remains a great deal of customised work involved in transacting a longevity swap, so it could be some time before we see a £100m deal. When that happens though, expect the frequency of these deals to increase dramatically as smaller pension schemes look to hedge their longevity risks.

Here’s a useful list of other major UK longevity risk transfer and longevity swap transactions to date:

DateFundProviderApprox sizeSolution
May 2013BentleyAbbey Life£400mPensioner bespoke longevity swap
April 2013Abbey Life / Rothesay LifeHannover Re£1bnLongevity reinsurance transactions
February 2013BAE SystemsLegal & General£3.2bnPensioner bespoke longevity swap
December 2012LV=Swiss Re£800mPensioner and all members over age 55
May 2012Akzo NobelSwiss Re£1.4bnPensioner bespoke longevity swap
January 2012PilkingtonLegal & General£1bnPensioner bespoke longevity swap
December 2011British AirwaysGoldman Sachs / Rothesay Life£1.3bnPensioner bespoke longevity swap
November 2011Rolls-RoyceDeutsche Bank£3bnPensioner bespoke longevity swap
August 2011ITVCredit Suisse£1.7bnPensioner bespoke longevity swap
February 2011PallJ P Morgan£70mNon-pensioners index based longevity hedge
July 2010British AirwaysGoldman Sachs / Rothesay Lif£1.3bnSynthetic buy-in (longevity swap plus asset swap)
February 2010BMWAbbey Life / Deutsche Bank£3bnPensioner bespoke longevity swap
November 2009Royal BerkshireSwiss Re£1bnPensioner bespoke longevity swap
July 2009RSA Insurance GroupGoldman Sachs / Rothesay Life£1.9bnSynthetic buy-in (longevity swap plus asset swap)
May 2009BabcockCredit Suisse£1.5bnPensioner bespoke longevity swap (three schemes)
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