ScottishPower in £2 billion longevity swap with Abbey Life

ScottishPower UK PLC, a subsidiary of Iberdrola SA, has offloaded £2 billion of longevity risks to Abbey Life Assurance Company Limited (a subsidiary of Deutsche Bank) in a longevity swap transaction.

The longevity swap transaction sees the UK power and energy company ScottishPower gaining more certainty over its pension schemes responsibilities, hedging the risk of pension liabilities rising if pensioners live longer than budgeted for.

ScottishPower UK PLC and the Trustee of the ScottishPower Pension Scheme announced today that they have agreed and closed this £2 billion longevity insurance swap with Abbey Life.

The hedge covers approximately £2 billion worth of ScottishPower’s pension liabilities, representing the pension liabilities of around 9,000 of its scheme members and their contingent dependents.

By transferring this risk via the longevity insurance swap to Abbey Life, the management of ScottishPower and the pension fund Trustee’s are pursuing a strategy to manage both risk and uncertainty in their liabilities.

Sheila Duncan, Human Resources Director at ScottishPower commented on the deal; “We are extremely satisfied with the completion of this hedge at an attractive price. This transaction demonstrates Iberdrola’s commitment to the security of the benefits of our pension scheme members and reduces risks at group level as part of our ongoing strategy of pension risk management.  We are particularly pleased that the transaction was concluded within the provisions of the Scheme’s existing funding reserves, thus not requiring additional cash contributions.”

Peter Thompson, Chairman of the Trustee, added; “The Trustee is delighted with the outcome of this transaction after months of work with Iberdrola, our advisers led by Mercer, and Abbey Life.  We are pleased to protect against this uncertainty in the scheme, thus providing increased security to our members.”

According to Mercer, who advised on the deal, ScottishPower ran a competitive bidding process featuring both well-known and new sources of reinsurance capacity. The end result was that the longevity swap was transacted at a cost below funding assumptions, allowing the pension scheme to both reduce risk and optimise its deficit at the same time.

This is the first major longevity swap transaction involving Abbey Life since a £2.5 billion longevity swap with Astra Zeneca in December 2013.

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