Heineken, which acquired the UK business of Scottish & Newcastle in 2009, has announced that it has completed a longevity hedging and reinsurance transaction with Friends Life Limited, now part of insurer Aviva Group, transferring £2.4 billion of longevity risk.
The transaction, covering approximately 19,000 defined benefit pensioners of the Scottish & Newcastle Pension Plan, provides Heineken with funding security and protection against the financial risk of pensioners living longer than originally expected.
Global reinsurance player Swiss Re has provided capacity for an undisclosed portion of the longevity swap transaction.
The pension is said to have identified capacity within the insurance industry that had not previously been accessed, with the support of Towers Watson who led the transaction as adviser to the joint Trustee and Company working group.
Neil Parfrey, UK Head of Pensions at Heineken, commented; “By hedging against longevity, we have reduced a significant amount of the Plan’s risk should the overall life expectancy of members exceed our projections. This should help bring peace of mind to Plan members, and we are delighted that it has been achieved in a cost efficient manner.”
Ian Aley, Head of Pension Transactions at Towers Watson, added; “This transaction is a further example of how innovation and excellent market relationships can lead to significant cost efficiencies. Heineken has broken new ground with this transaction, identifying a new longevity counterparty in Aviva, who provided additional market capacity on this occasion.”
David Still, Managing Director for Heritage at Aviva, said; “This transaction further demonstrates Aviva’s commitment to working with corporate clients to provide solutions that manage their pension scheme risks. Leveraging the strong partnership we forged with the Trustees and with Swiss Re, our reinsurance partner on this transaction, we are delighted to have been selected as the insurer for a transaction of this scale, which provides greater certainty for the Scottish & Newcastle Pension Plan in relation to its longevity risk.”
Longevity insurance and reinsurance activity remains high, with markets welcoming the chance to use capacity to help pension plans hedge the risk of their members living longer than forecast.