Hymans Robertson was the architect of the project and lead advisor on all transactions.
This is the first scheme to have combined a buy-in and a longevity insurance to hedge its longevity risk. It creates a blueprint which we expect others will follow, tailoring transactions to pension schemes’ individual circumstances.
The trustees were able to move from a decision to go ahead to signing the contract in one of the shortest periods that we have seen.
This transaction is an example of the expected increase activity in the risk transfer market. Hymans Robertson’s Risk Transfer report anticipates UK Buy-in demand set to quadruple over the next 15 years.
SSE plc, the FTSE 100 energy company, has worked with two of the DB pension schemes which it sponsors to deliver a landmark project that will hedge £1.2bn of longevity risk through two buy-in transactions and a longevity insurance.
The two buy-ins with Pension Insurance Corporation (“PIC”) totalled £350m, covering c£250m of pensioner liabilities in the Scottish Hydro-Electric Pension Scheme (“SHEPS”) and c£100m of pensioner liabilities in the Scotia Gas Networks Pension Scheme (“SGNPS”).
The longevity insurance covers a further £800m of pensioner longevity risk in the SHEPS and is the first transaction to use Legal & General’s efficient “UK-based pass through” structure to transfer longevity risk to the end reinsurer.
Hymans Robertson was the architect of the project and lead advisor on all transactions. CMS provided legal advice to the Trustees on both transactions, Club Vita provided longevity analytics throughout the process and Eversheds Sutherland provided legal advice to Legal & General.
SHEPS is the first scheme to have combined a buy-in and a longevity insurance to hedge its longevity risk. We expect others to follow this blueprint which helps to tailor transactions to pension schemes’ individual circumstances.
The trustees of the SHEPS and the SGNPS were able to achieve significant cost savings on the buy-in transactions by requesting insurers to provide quotations for both schemes at the same time. This brought noticeable transactional efficiencies and led to particularly competitive pricing from insurers. The tightly managed process run by Hymans Robertson sets new standards for efficient and effective execution. Both transactions were completed within three weeks of selecting the insurer with one of the transactions being completed within two weeks.
The combination of these three transactions has led to material improvements in the funding positions of both schemes, allowing them to reduce risk and improve member security.
Graham Laughland, Chair of trustees for the Scottish Hydro-Electric Pension Scheme commented: “I am delighted to have taken this positive step in reducing risk and improving the security of members’ benefits. Hymans Robertson’s and CMS’ advice and specialist experience in the buy-in and longevity insurance market were invaluable. Through their efficiency and tailored approach the Scheme was able to save money at each stage of the process. Club Vita’s market leading longevity analytics gave the trustees great confidence in assessing both the value of the transactions and the amount of longevity risk that has been successfully removed from the Scheme. I also want to thank the team at PIC, who have been proactive in forging a strong relationship with the Scheme and have shown a focus on customer service.”
Tony Fettiplace, Chair of trustees for the Scotia Gas Networks Pension Scheme added: “This deal is great news for the Scheme. Reducing risk over time is an absolute priority for us and it is important to do this in the most cost effective way. Hymans Robertson’s proposal to work collaboratively with the Scottish Hydro Electric Pension Scheme worked very well to the ultimate benefit of both schemes. We are delighted to complete this buy-in with PIC, who were flexible and innovative in helping the Scheme follow this collaborative approach and achieve our aims.”
Richard Wellard, lead advisor and partner at Hymans Robertson added: “It was very rewarding to work with both sets of trustees and to design a package of transactions that delivered such an excellent deal. All parties have been able to achieve their objectives and SSE plc joins the increasing number of FTSE 100 companies who have reduced longevity risk exposure in their pension schemes. We take pride in our ability to save our clients’ money and execute transactions efficiently and effectively. Over 90% of the transactions we take to market complete versus an industry average of around 50% and this gives our clients and insurers an extra layer of confidence in the projects we are running.”
Hymans Robertson has now advised 10 FTSE100 sponsored pension schemes on successfully completed buy-in, buy-out and longevity insurance transactions, including six as the lead risk transfer adviser.
Tristan Walker-Buckton at PIC commented: “This was a well thought through transaction and we thoroughly enjoyed working with the respective trustees and their advisors to reach a solution which best met their mutual de-risking needs.
Working closely with Hymans and CMS, the trustees were able to move from a decision to go ahead to signing the contract in one of the shortest periods that we have seen. This is an excellent example of how those pension schemes that are well prepared and well advised can achieve excellent outcomes in the bulk annuity market.”
James Parker at CMS commented: “We were very pleased to advise both sets of trustees on these transactions. Together with Hymans, our market-leading longevity team were able to bring specialist market knowledge and experience to facilitate a series of incredibly swift and unique longevity risk transfer transactions.”
Chris DeMarco at Legal & General commented: “We were delighted to work with the trustees and their advisors to deliver an innovative solution to the scheme. Our UK-based, longevity pass-through offering enabled the trustees to manage down this risk, while allowing them to benefit from cost efficiencies through our economies of scale and giving them the peace of mind that we will support them well into the future. We thoroughly enjoyed working with all parties and look forward to further supporting the trustees and helping them secure and protect their members' benefits.”
|
