Pension scheme for glass manufacturer completes £1bn longevity deal
UK - Glass manufacturer Pilkington has completed a £1bn (€1.1bn) longevity insurance arrangement with the help of Legal & General, marking the fourth large deal in the UK market in nearly as many months.
Hymans Robertson predicted the bespoke deal would pique further interest in the longevity market, as pension schemes search for cheaper ways to offload risk.
The Pilkington deal was followed by a longevity reinsurance deal between Legal & General Assurance Society and Germany's Hannover Re, which reinsured a portfolio composed purely of members with pensions in payment.
Tom Ground, head of business development at L&G, said he was "delighted" to secure what he viewed as an important deal in the wake of a £1.1bn buyout agreement with the T&N retirement benefits scheme, while Hannover Re's chief executive Ulrich Wallin said he expected further business opportunities in future.
The German company expected to earn premiums of £800m over the course of the agreement, saying £60bn in income was expected by the end of the year.
Matt Wilmington of Aon Hewitt, who acted lead advisor on the Pilkington deal, highlighted that longevity swaps could act as an addition to existing de-risking strategies.
"The ability to add longevity swaps to an existing liability-driven investment portfolio in order to create a synthetic buy-in solution in-house, means that schemes have a real alternative to insurance buy-in solutions.
"That change should be helpful in creating a genuinely competitive market for risk settlement deals," Wilmington added.
Andrew Gaches of Hymans Robertson, who acted as consultants on the longevity swap, said there was continued interest from schemes and sponsors in such deals, while providers were happy to continue taking on the risk on behalf of the pensions industry.
The longevity consultant told IPE that while there was still a limit on how much providers could take on board, this limit had yet to be reached.
"Indeed, there are still other backers out there who are, if you like, waiting in the wings to step in if the capacity gets used up," he said, citing the potential growth of a longevity market as a means of easing the burden on traditional providers.
"We know capital market players would like to get involved," he added, saying he did not, ultimately, expect capacity to be a constraint on the market's growth, although it could restrict the type of deals being conducted.
Gaches said the majority of recent deals were bespoke for each scheme and that if, as a result of this, prices on risk transfers rose, then interest in an index solution in the shape of a tradable longevity market could grow.
"We are heading in the direction where a market will develop," he said. "It may still be a few years off, but, ultimately, that is something that will happen.
"At the moment, one of the big barriers for index-linked trades is that the indices out there are very, very generic."
Pointing out that indices are based only on the UK's average population, he suggested a "middle ground", such as indices based on a socio-economic group, allowing for the best of both worlds.
Recent risk transfer deals include the former pension scheme of sandwich-maker Uniq, which agreed an £830m transfer with Rothesay Life, while the Rolls-Royce Pension Fund in November completed a £3.5bn deal and broadcaster ITV insured £1.7bn of risk in August.
British Airways' Airways Pension Scheme last month collated its second buy-in, bringing its coverage to 40% of total liabilities.