France-headquartered global reinsurance company SCOR has provided the capacity to back a UK £5.5 billion longevity swap arrangement for one of Lloyds Banks pension schemes, the reinsurers’ largest longevity reinsurance deal so far.
The Lloyds Banking Group Pensions Trustees Limited has now protected some £15.5 billion of its pension related longevity risks over the last two years, as it looks to offload the risk of pensioners living longer than anticipated to insurance and reinsurance counterparties.
The Lloyds Bank pensions entered into a £10 billion longevity swap and reinsurance arrangement with Scottish Widows and Pacific Life Re in early 2020.
This latest transaction saw the Lloyds Bank No. 1 Pension Scheme entering into a longevity hedging arrangement with Scottish Widows and SCOR to protect the scheme against the cost of unexpected increases in member life expectancy.
The Lloyds Bank pension scheme entered into a longevity swap or insurance arrangement with Scottish Widows and the UK £5.5 billion of longevity risk was then 100% covered by reinsurance from SCOR.
As a result, SCOR has assumed the full £5.5 billion of longevity exposure associated with the swap arrangement, with Scottish Widows acting as an intermediary insurer.
The pension Trustee said that it selected Scottish Widows Limited and SCOR because their propositions “offered the best balance of financial security, value and underwriting strength.”
SCOR called this a “landmark transaction” this morning, saying that it continues to “deliver on its longevity growth strategy.”
The reinsurer said that it sees continued strong demand for longevity protection and that its growth trajectory in this segment of its business “further underscores SCOR’s broader strategy to expand and diversify its Life & Health franchise.”
For major reinsurers, adding longevity exposure can be a natural hedge of sorts to their mortality books, allowing them to grow rapidly into this class of business.
This longevity hedging arrangement has been structured so that, in return for a series of fixed premiums, SCOR will pay claims based on the pensions actually paid to members of the scheme.
Laurent Rousseau, SCOR, Chief Executive Officer, commented, “This is our largest longevity transaction to date. It reaffirms SCOR’s commitment to supporting pension scheme de-risking in the UK and globally. Recent world events such as the pandemic have underscored the uncertainty associated with life expectancy and the strategic necessity to provide adequate reinsurance solutions. We are pleased to provide protection and certainty to the Lloyds Bank pension members and broaden our Life & Health franchise.”
Matt Collins, SCOR, Head of Longevity Business Development, added, “It was a great pleasure working with the Trustee and its advisors at WTW on such a milestone transaction for SCOR. The investment put in by the Trustee and WTW on previous transactions significantly helped make this a smooth and efficient process. I would like to thank all the parties who worked together with us for the successful completion of this significant transaction.”
Vicky Paramour, Trustee Director and Chair of the Investment & Funding Committee, said, “We are pleased to have successfully completed these longevity insurance and reinsurance arrangements with Scottish Widows Limited and SCOR. This will reduce the Scheme’s exposure to longevity risk and make the Scheme more secure to the benefit of all members.
“The selection of Scottish Widows Limited and SCOR followed a fair, robust and transparent review of the longevity insurance and reinsurance options available across the market and their respective propositions delivered the best combination of benefits to meet our brief.”
Matt Wiberg, WTW, lead adviser to the Trustee, also said, “It has been a great pleasure to work with the Trustee again and I am delighted to have advised on their second material longevity transaction. The Trustee has now hedged over £15 billion of the Schemes’ longevity risk providing greater certainty in relation to their long-term journeys. The infrastructure established by the first transaction in 2020 was crucial in running an efficient process that enabled the Trustee to benefit from a market opportunity to further reduce longevity risk in a cost-effective manner.”
Philip Jarvis, Allen & Overy, legal adviser to the Trustee, commented, “We are delighted to have advised the Trustee on this second longevity swap transaction, and to have been able to continue our involvement with this strategically important project for the Trustee. This is another significant transaction in what continues to be an active market for longevity de-risking by pension schemes.”
Lara Desay, Head of Origination and Operations at Scottish Widows further explained, “We are delighted to be able to extend our relationship with the Trustees in their de-risking journey. This transaction demonstrates the continued high demand for longevity protection for UK pension schemes to mitigate funding volatility. We are also grateful to our legal advisor Eversheds Sutherland, SCOR and advisors on all sides of the deal for the collaborative approach adopted to complete this complex transaction.”
While this is the largest longevity reinsurance deal so far for SCOR, the company has previously entered into numerous longevity risk transfer and reinsurance arrangements and features regularly in our extensive Longevity Risk Transfer Deal Directory.