The new longevity insurance and reinsurance arrangement covers £5.5 billion of pensioner liabilities in the Lloyds Bank Pension Scheme No.1 (the Scheme) and follows the £10 billion of liabilities covered across the Lloyds Banking Group pension schemes by a similar arrangement entered into by the Trustee in 2020.
This decision will not change the pension benefits that will be paid to members of the Scheme. All pensioners will continue to receive their pensions each month as normal, and these will continue to be paid by the Trustee.
This protection is structured as an insurance with Scottish Widows Limited as the insurer and corresponding reinsurance with SCOR as the reinsurer. This structure means that the Scheme’s longevity risk is passed to SCOR.
The Trustee undertook a full market review which saw several insurers and reinsurers putting forward proposals which were analysed by the Trustee and its advisers. Following a robust procurement process, the Trustee selected Scottish Widows Limited and SCOR because their respective propositions offered the best balance of financial security, value and underwriting strength.
Vicky Paramour, Trustee Director and Chair of the Investment & Funding Committee, stated: “We are pleased to have successfully completed these longevity insurance and reinsurance arrangements with Scottish Widows Limited and SCOR. This will reduce the Scheme’s exposure to longevity risk and make the Scheme more secure to the benefit of all members.”
“The selection of Scottish Widows Limited and SCOR followed a fair, robust and transparent review of the longevity insurance and reinsurance options available across the market and their respective propositions delivered the best combination of benefits to meet our brief.”
Matt Wiberg, WTW, lead adviser to the Trustee, said: “It has been a great pleasure to work with the Trustee again and I am delighted to have advised on their second material longevity transaction. The Trustee has now hedged over £15 billion of the Schemes’ longevity risk providing greater certainty in relation to their long-term journeys. The infrastructure established by the first transaction in 2020 was crucial in running an efficient process that enabled the Trustee to benefit from a market opportunity to further reduce longevity risk in a cost-effective manner.”
Philip Jarvis, Allen & Overy, legal adviser to the Trustee, remarked: “We are delighted to have advised the Trustee on this second longevity swap transaction, and to have been able to continue our involvement with this strategically important project for the Trustee. This is another significant transaction in what continues to be an active market for longevity de-risking by pension schemes.”
Lara Desay, Head of Origination and Operations at Scottish Widows commented: “We are delighted to be able to extend our relationship with the Trustees in their de-risking journey. This transaction demonstrates the continued high demand for longevity protection for UK pension schemes to mitigate funding volatility. We are also grateful to our legal advisor Eversheds Sutherland, SCOR and advisors on all sides of the deal for the collaborative approach adopted to complete this complex transaction.”
Matt Collins, Head of Longevity Business Development at SCOR added: “It was a great pleasure working with the Trustee and its advisors at WTW on such a milestone transaction for SCOR. The investment put in by the Trustee and WTW on previous transactions significantly helped make this a smooth and efficient process. I would like to thank all the parties including our advisor, CMS, who worked together with us for the successful completion of this significant transaction.”
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