PIC insures £750m of Scottish & Southern Energy pensioner liabilities

Pension Insurance Corporation, a specialist insurer of defined benefit pension funds, has completed a third pension risk transfer transaction for a pension scheme sponsored by Scottish & Southern Energy (SSE).

It converts a pensioner longevity swap held by the Scottish Hydro Electric Pension Scheme (SHEPS) into a £750 million buy-in. In 2016, PIC insured £250 million of SHEPS’s pensioner liabilities and £100 million of pensioner liabilities in the Scotia Gas Networks Pension Scheme, through two separate buy-ins.

A key feature of the new transaction is that PIC is restructuring and stepping into the existing longevity swap and it underpins the buy-in from inception. PIC said this longevity swap conversion to buy-in confirms the trend within the market for trustees to seek guarantees for all of their risks. A number of recent longevity swaps have been converted to buy-ins and more are expected.

SSE, a constituent of the FTSE 100, is a UK energy company with operations and investments across the UK and Ireland. It is primarily a developer (which includes being a builder), an operator and an owner of low-carbon energy assets and businesses, with a strategic focus on regulated electricity networks and renewable energy.
The SHEPS Trustees were advised by Hymans Robertson and Shepherd and Wedderburn.

Graham Laughland, chairman of trustees of SHEPS, said: “I am delighted that the trustees have been able to take another step in reducing risk and improving the security of members’ benefits. This buy-in extends the insurance we have in place and provides the scheme with an income stream that matches in all material respects the pensions currently being paid. A very smooth process from my perspective.”

Tristan Walker-Buckton, head of pricing at PIC, said: “The t trend within the market for trustees to seek guarantees for all of their risks.rustees of SHEPS have been a valued client of ours since 2016 and we are delighted to have been able to help them further de-risk their pension liabilities. Converting a longevity swap into a buy-in is not straightforward but it is an increasing trend. It shows that trustees are keen to extend their de-risking programme beyond longevity risk and into a buy-in or buyout, giving them fuller coverage and a simpler proposition to manage long-term.”

Richard Wellard, partner at Hymans Robertson, added: “It was really enjoyable working with the trustee and SSE through this project. They have a clear set of objectives for the pension scheme and this allows us to identify when transactions will add real value in achieving those objectives. Forty longevity swaps have been put in place by pension schemes and this is the fifth conversion into a buy-in. The process of converting a longevity swap to a buy-in is more complex than implementing a buy-in from scratch, but we expect more schemes to follow this path as they become better funded and look to lock down risk.”

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