UK broadcaster announces £1.7bn longevity swap deal with Credit Suisse
UK - The pension scheme for broadcaster ITV has committed to one of the UK's largest longevity swaps to date, with the deal worth approximately £1.7bn (€1.9bn).
Under terms of the contract, Credit Suisse will receive fixed monthly payments from one of the UK's largest broadcasters. In return, it will cover the arising cost of scheme benefits.
The announcement comes the same day as a £30m buyout of Nova Chemicals' scheme by Pension Insurance Corporation.
Graham Parrott, chairman of ITV Pension Scheme Trustees, said all of the fund's advisers worked together to guarantee a contract that met its objectives.
It had recently reported a £312m deficit, after the sponsor's deficit reduction payments were all but wiped out by an increase in liabilities in the first six months of the year.
Parrott said: "By removing a significant risk from the pension scheme, this contract enhances the security of all members' benefits and dovetails with the other steps we have taken to achieve that goal."
Raj Mody, head of PwC's pension practice, noted the limited capacity for such longevity swaps in the market and said company sponsors would often need to play a "central" role for such transactions to go ahead, with trustees acting as signatories.
"The high-profile and complex nature of these transactions means senior management at the product providers are key decision-makers and the company's relationships with these individuals can make a positive difference to the terms of the deal."
Mark Duke, head of settlement consulting at Towers Watson - the consultancy that headed up the transaction - argued that such a longevity swap was attractive for trustees, as they were used to life expectancy being "a one-way street", with each review bringing an increase in costs.
"Recent market turbulence has highlighted the need for pension schemes to have a clear risk management strategy," he added. "Knowing what risks to eliminate and when is going to be central the way pension schemes are run."
However, James Mullins, partner and senior liability management specialist at Hymans Robertson, noted that, despite significant activity, no noteworthy longevity swap deals had occurred since BMW's £3bn transaction in 2010.
However, he said he expected there were a number of deals waiting to finalise - with one larger transaction expected before the end of summer.
He told IPE: "What you'll see now is that, while there has been a lull, I am aware of a good couple of others that are close to completion. This will be the first of several other big ones you'll see later this year."
He denied it was a case of companies waiting for an opportune moment to finalise the contract, with deals simply taking time to be negotiated, as trustees' objectives often needed to be taken into consideration.
"The market will continue to be quite lumpy, so you will see some quarters where nothing is going through and then others where there are one or two in quick succession," he said.
Hymans had previously reported a 400% increase in risk transfer deals, such as buy-ins and buyouts, in Q2, with £3.6bn in activity for the year to date.
To date, the longevity risk market had seen £7.2bn in activity, with ITV's contract boosting the figure to £8.9bn.