The Willis Pension Scheme has entered into a longevity swap transaction with Munich Re to manage longevity risk in relation to around £1bn of pensioner liabilities.
The arrangement - which covers around 3,500 members - relates to pensions in payment in the scheme and aims to provide long-term protection for the scheme against additional costs resulting from pensioners or their dependants living longer than expected.
The longevity risk has been transferred to the reinsurer via a Guernsey-based captive insurance company fully owned by the trustee of the scheme, which has established under Willis Towers Watson Guernsey ICC Limited.
This is part of Willis Towers Watson's (WTW) longevity direct solution which allows pension schemes to use a ready-made incorporated cell company to access the reinsurance market.
WTW head of transactions Ian Aley, the lead adviser on the deal, said: "The longevity swap market is currently very buoyant and represents an opportunity for pension schemes such as the Willis Pension Scheme to manage a material risk while retaining the flexibility to achieve the required investment returns to complete their journey plan.
"Completing this transaction despite some challenging circumstances following the recent lockdown demonstrates how collaborative working can deliver outstanding results".
Willis Pension Scheme trustee chairman Peter Routledge added: "I am delighted that the trustee has taken a first and significant step to ensure that our members' benefits are secured against future improvements in life expectancy, supplementing the trustee's wider risk management program to protect the scheme against investment and demographic volatility.
"The transaction was concluded effectively, enabling us to access the longevity swap markets whilst pricing was attractive relative to scheme funding. Having considered the options for accessing the reinsurance market we concluded that longevity direct offered the best value solution for our Scheme."
WTW led the advice on the transactions, with Travers Smith, Carey Olson (Guernsey) and Hengeler Mueller providing legal advice to the trustees. Lincoln Pensions advised on the reinsurer financial strength. Sidley Austin provided legal advice to Munich Re.
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