Pacific Life Re completes £10bn ($13bn) longevity swap with Lloyds Banking Group

Pacific Life Re has completed a longevity swap transaction with Lloyds Banking Group Pensions Trustees (the Trustee).

The longevity swap, which Pacific Life Re says is the second largest ever completed in the UK, covers the longevity risk in respect of £10 billion ($13 billion) of pensioner liabilities in certain Lloyds Banking Group pension schemes.

The transaction is structured as an insurance policy with Scottish Widows Limited acting as the insurer and onwards reinsurance to Pacific Life Re. The policy will protect the schemes from the financial risk of an unexpected increase in life expectancy and make the schemes more secure to the benefit of all its members.

Andy McAleese, Pacific Life Re, head of longevity, commented: “Pacific Life Re has been a long-term supporter of longevity risk transfer, having completed the first UK pension scheme longevity swap in 2009. There have been record volumes of pension risk transfer in 2019 and we are continuing to see very strong demand carrying over into 2020. This milestone arrangement demonstrates that longevity swaps continue to be an important risk transfer tool for pension schemes.”

Simon Bramwell, Pacific Life Re, project lead, added: “We are delighted to have worked with the Trustee and its advisors and, in particular, the level of clarity and engagement they brought to the process. In a busy marketplace, being clear and decisive on data, terms and timescales gives everyone confidence in the process and has resulted in a positive outcome for all. I’d also like to thank CMS in providing direct and pragmatic legal advice, helping to ensure that a significant and complex transaction was completed quickly and efficiently.”

Thomas Lockley, CMS, legal adviser to Pacific Life Re, said: “A tremendous amount of credit should go to the Trustee, Scottish Widows and Pacific Life Re for completing a significant transaction in such an efficient and collaborative manner. It is a great example to the market of the risk capacity, advisor capacity and commercial will to negotiate and transfer complex risks in short timeframes. CMS are proud to have supported Pacific Life Re on the transaction.”

Ian Aley, Willis Towers Watson, head of transactions, said: “This material transaction is further evidence of pensions schemes’ appetite to manage longevity risk. The longevity swap market is currently showing a huge amount of demand from pension schemes, and reinsurers like Pacific Life Re are certainly rising to the challenge through both innovation and record-breaking transaction sizes, as well as efficient execution.”