Phoenix Life has announced it completed a buy-in for its UK defined benefit (DB) scheme last December, making it the largest de-risking transaction of the year.
The insurer, which does not offer a bulk annuity proposition to the wider market, revealed the details of the £1.2bn buy-in for the PGL Pension Scheme in its 2016 annual results published on 20 March.
The transaction, which covered 4,400 pensioners and dependents, converted an existing longevity swap into a bulk annuity contract, covering both longevity and investment risk. In June 2014 the insurer had entered into a longevity swap with the scheme with effect from 1 January 2014.
It is the first time where a longevity swap has been unwound and converted into a bulk annuity.
Aon Hewitt, which advised the trustee, said by arranging the swap in advance, the scheme was able to get beneficial pricing for the annuity conversion.
The terms were tailored to the scheme's circumstances and included an all-risks cover for residual risks and a new collateral structure to back the annuity, which gives substantial additional protection.
Aon Hewitt risk settlement adviser Dominic Grimley said: "Bringing so many elements of the scheme together in this way was a particularly rewarding experience. Reaching this point was only possible due to the hard work and belief from the trustee and employer, combined with strong stewardship of the scheme."
The group said the buy-in allows the potential for further value creation through investing assets in line with its strategic asset allocation.
At the same time as the buy-in, a rule change was made for pre-1997 excess benefits for members of the Phoenix section of the PGL scheme, which increased the DB obligation by £6m. Whereas previously members received discretionary increases in payment on these benefits, they will now get increases in line with the Consumer Price Index up to a maximum of 5% per annum.
The PGL Pension Scheme's final salary section is closed to new entrants and has been closed to future accrual since 1 July 2011.
The scheme's latest triennial funding valuation completed last June showed it had a £164m surplus as at 30 June 2015.
De-risking deals hit £10.2bn last year thanks to a busy second half as concerns over Solvency II waned, according to Lane Clark & Peacock (LCP). Legal & General stole the crown, transacting more than £3bn of deals, while Phoenix Life's transaction with its own pension scheme saw it jump into third place.
Aviva Life & Pensions has concluded an £875m buy-in with its own staff pension scheme, following on from a similar transaction last year.
Just Group has completed a £74m pensioner buy-in with the UK pension scheme of a US-listed engineering business.
The Smiths Industries Pension Scheme has secured a £146m buy-in with Canada Life in its fourth bulk annuity and its sponsor’s tenth overall.
The Prudential Staff Pension Scheme has entered into a £3.7bn longevity swap with Pacific Life Re, insuring the longevity risk of over 20,000 pensioners.
The Baker Hughes (UK) Pension Plan has secured approximately £100m of liabilities through a buy-in with Just Group.