Legal & General (L&G) has entered the small scheme longevity insurance market after completing a £300m longevity swap with a pension fund.
The insurer has historically insured larger schemes, but the transaction announced today (22 August) is the first it has conducted with an unnamed "mid-tier" scheme and is a bid to show longevity swaps for smaller schemes are a "realistic option".
The transaction was conducted via a "streamlined structure", which simplified data, and removed complexities not required by smaller schemes. This then provided the scheme with "straightforward and easy to manage" ongoing requirements and kept down fixed costs to ensure competitive pricing.
The entire longevity swap has since also been reinsured by global insurer Scor.
L&G Retirement Institutional managing director for UK pension risk transfer Chris DeMarco said the scheme had benefitted by removing the risk while retaining ability to earn returns on assets.
"Smaller pension schemes often feel that the only insurance options they have are traditional buy-in or buyout structures," he continued. "This transaction demonstrates that longevity insurance is a realistic option for most pension schemes, including for trustees whose schemes are not quite at the point they can enter into buy-in or buyout but want to manage their longevity risk.
"We were delighted to work with the trustees, their advisers, and the reinsurer on this case, providing not only a solution that works for this scheme, but which can also be replicated for other schemes in a similar positions."
The scheme was advised by Eversheds Sutherland and Willis Towers Watson, whose director, Matt Wiberg, acted as lead adviser on the transaction.
Wiberg said: "Willis Towers Watson, working with the trustees and the company, identified that longevity was the key unhedged risk for the scheme. We were pleased to work alongside L&G to shape this new de-risking solution, which brings helpful competition to the smaller size longevity swap market, and allowed the trustees to hedge longevity risk at a very attractive cost."
L&G's largest ever longevity swap was conducted in 2013 when it took on £3.2bn of risk from BAE Systems' pension scheme in what was then the UK's largest longevity deal.
Last year, it provided an £800m longevity swap to Scottish and Southern Energy's Scottish Hydro-Electric Pension Scheme.
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.