Willis Towers Watson (WTW) has acted as the sole adviser to the AXA UK Group Pension Scheme on its £3 billion longevity swap with Hannover Re to manage longevity risk in the scheme.
The longevity swap is a market first, with over 95 per cent of the 16,000 members covered being non-pensioners.
Shelly Beard, senior director for transactions at WTW and lead adviser, says the speed at which this transaction was completed, even with the additional structuring considerations from including non-pensioners, “demonstrates that once an initial longevity swap has been completed, additional transactions can be completed quickly and efficiently”.
Beard comments: “The collaborative approach taken by the AXA UK, Linklaters and Hannover Re teams was also incredibly beneficial to the project.”
As well as removing the majority of the scheme’s remaining longevity risk, the inclusion of non-pensioners is very helpful for the scheme’s investment strategy as it provides increased cash flow certainty, according to Beard.
While pensioner longevity swaps have become relatively commonplace in the UK de-risking market since WTW led the first deal in 2009, Beard suggests this deal is “the first whole of life longevity swap covering a material volume of non-pensioners and we expect significant appetite from other pension schemes to replicate the structure”.
“More widely, the longevity swap market remains buoyant and represents an opportunity for pension schemes to manage a material risk whilst retaining the flexibility to achieve the required investment returns to complete their journey plan,” Beard adds.
In December, WTW predicted that this year will look like 2020 with another £30 billion of buy-ins and buyouts expected and £25 billion of longevity swaps to be completed.
Also last year, Willis Pension Scheme entered into a longevity swap transaction with Munich Re to manage longevity risk concerning £1 billion of pensioner liabilities.
