Energy Firm Seals £1B Longevity Swap

Abbey Life backs the transaction, covering 4,000 UK pensioners.

UK energy firm ScottishPower has completed a £1 billion ($1.3 billion) longevity swap transaction as part of a wider move to reduce pension risk. 

Deutsche Bank subsidiary Abbey Life backed the deal, which covers 4,000 members of the Manweb pension, connected to a legacy company previosuly responsible for energy provision in the north-west of England.

It is the second longevity transaction completed by the ScottishPower group of companies, following a £2 billion deal in early 2015

“Longevity risk is a significant risk for defined benefit schemes and is more significant than ever in the historically low-yield environment,” said Andrew Ward, head of longevity risk management at Mercer, which advised on the deal.

Ward added that the “attractive cost” of the transaction demonstrated that “substantial risk management is still possible post-European Union referendum.”

Graham Wardle, ScottishPower group trustee chairman, said the company had “taken a major step in removing longevity risk.”

While there have been few prominent de-risking transactions in 2016, Mercer’s Ward predicted “significant” activity in the second half of the year.

“In addition to the continued use of tried-and-tested insurance structures, there continues to be innovation to increase the range and efficiency of options to manage this risk,” Ward said. “These range from streamlined solutions available for small schemes, to ‘captive’ or ‘pass-through’ structures for larger schemes—all of which aim to reduce costs and increase flexibility.”

Consultant Redington recently urged pensions that have conducted longevity de-risking exercises to review the terms of their deals in light of new mortality data. 

Related: The Hidden Cost of Longevity Swaps & Brexit’s First Winners: De-riskers