Legal & General in £300m streamlined longevity swap


The market for streamlined and smaller longevity swap transactions has a new entrant, as Legal & General Assurance Society Limited (Legal & General) has completed its first such deal, a £300 million longevity insurance deal for a mid-sized UK pension.

Legal & General has taken the roughly £300 million of longevity risk off the unnamed pension scheme and the risk has all been passed on to reinsurance capital.

Legal & General must therefore make a margin in fees on these deals, through the arrangement and structuring of the longevity risk and then 100% reinsuring it to a global reinsurance firm, in this case French reinsurer SCOR.

Chris DeMarco, Managing Director UK Pension Risk Transfer, for Legal & General Retirement Institutional, commented, “This innovative transaction has allowed the scheme to use insurance to remove the risk to the scheme’s liabilities of its pensioner members living longer than expected, whilst still benefiting from any returns that it receives on the assets it retains.

“Smaller pension schemes often feel that the only insurance options they have are traditional buy-in or buyout structures. This transaction demonstrates that longevity insurance is a realistic option for most pension schemes, including for trustees whose schemes are not quite at the point they can enter into buy-in or buyout but want to manage their longevity risk.

“We were delighted to work with the Trustee, their advisers and the reinsurer on this case, providing not only a solution that works for this scheme, but which can also be easily replicated for other schemes in a similar position.”

Longevity swaps and insurance deals remain more typically the domain of larger pension schemes, but these streamlined deals are allowing smaller transactions to be completed in this manner.

L&G explained that the streamlined structure makes the ongoing requirements for trustees more straightforward and easy to manage, while also keeping fixed costs to a minimum, helping to deliver more competitive pricing for pension schemes of this size.

The pension schemes Trustee was advised by Willis Towers Watson and Eversheds.

Matt Wiberg, Director at Willis Towers Watson and lead adviser for this transaction, commented, “Willis Towers Watson, working with the Trustee and Company, identified that longevity was the key unhedged risk for the scheme. We were pleased to work alongside Legal & General to shape this new de-risking solution, which brings helpful competition to the smaller size longevity swap market, and allowed the Trustee to hedge longevity risk at a very attractive cost.”

Read about numerous historical longevity swap and reinsurance transactions, in our Longevity Risk Transfer Deal Directory.

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