Aon Hewitt has announced that it was the lead advisor to the Trustees of the PGL Pension Scheme in their longevity insurance transaction with Phoenix Life Limited. The arrangement provides additional security for the trustees by hedging the longevity risk of around £900m of the scheme's liabilities.
Martin Bird, senior partner and head of the Risk Settlement Group at Aon Hewitt, said:
"This transaction highlights the continuing innovation in the longevity risk transfer market - particularly around ways of accessing the reinsurance market. Already this year we have seen the BT deal involving the establishment of an insurance vehicle and the Aviva transaction, where an insurance vehicle owned by the scheme sponsor acted as intermediary between the scheme and the reinsurers.
“We expect to see this innovative thinking being sustained in the market over the coming months, making the abundance of longevity capacity available in the reinsurance market more accessible to a range of schemes both very large and small."
The PGL arrangement involved the transfer of the scheme's longevity risk in respect of its pensioners to Phoenix Life Limited.
Matt Wilmington, partner in Aon Hewitt’s Risk Settlement Group, added:
"The arrangement was a win-win for trustees and Phoenix Life, reducing risk in the scheme and allowing the insurer to structure its capital arrangements more efficiently. We also expect a number of other insurers who are in a similar position with large defined benefit pension schemes to consider a similar type of arrangement.
“In this case, the insurance contract formed part of a funding agreement between the scheme and its sponsor which will also allow the scheme to reduce investment risks further by providing enhanced funding.”
CMS Cameron McKenna was the lead legal advisor to the trustees. Commenting on the transaction, James Parker, partner at CMS Cameron McKenna, said:
“Disintermediation is at the very cutting edge of developments in the longevity market and this transaction is strong evidence of a growing trend. We are delighted to have been able to assist the trustee on this transaction which consolidates CMS' leading position as a legal advisor in the longevity market.”
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