HSBC scheme agrees £7bn longevity swap package
On the go: Trustees of the HSBC Bank UK Pension Scheme have agreed the second-largest longevity swap in UK history, insuring £7bn of the scheme's liabilities against living too long.
The transaction was secured with US insurer The Prudential Insurance Company of America and was a captive deal, meaning that sponsor HSBC set up its own insurance company in Bermuda before passing the transaction to PICA in a reinsurance contract.
The captive structure, developed to handle the mammoth £16bn transaction agreed by the BT Pension Scheme in 2014, allows efficient access to a "deep and liquid" reinsurance market for longevity, according to PICA.
At almost £28bn as of the end of 2017, the deal will not completely immunise the scheme against improvements in life expectancy, but its derisking process is described as "ongoing".
Russell Picot, chair of the trustees, said: “I am delighted that the Trustee has taken an important step to ensure that our members’ benefits are strongly secured against improvements in life expectancy. This is a continuation of our derisking journey and we are pleased to have completed the deal at attractive pricing and working in partnership with our sponsor. This is a positive step in providing additional security of members’ pensions.”
Consultancy Willis Towers Watson and law firm Sackers advised the trustee on the deal.
While longevity swap volumes have been lumpy in recent years, experts expect the derisking tool to remain popular among schemes, as slowing improvements to life expectancy result in better pricing. However, Hymans Robertson warned earlier this year that pension schemes may find themselves in competition with bulk annuity insurers, who access the longevity reinsurance market to increase their capacity to write buyout and buy-in business.