AXA secures 'market first' deferred longevity swap with Hannover Re

The AXA UK Group Pension Scheme has secured a £3bn longevity swap with Hannover Re, covering 16,000 members of the defined benefit (DB) pension scheme.

The swap, which closed on 27 February 2021, is thought to be a market first, with 95 per cent of the members included being non-pensioners, and it will cover pensions that come into payment after 31 March 2019.

It will form part of the scheme’s investment portfolio, and builds upon previous longevity swap transactions, which were put in place to protect pensions that had already come into payment by 31 March 2019.

Combined with these previous swaps, the deal will mean that nearly 93 per cent of the pension scheme’s liabilities are now protected against the chance of members living longer than anticipated.

AXA and the trustee appointed Willis Towers Watson and Linklaters as lead advisers throughout the transaction, marking the third longevity swap that the scheme has done in partnership with WTW over the last six years.

AXA UK Pension Trustees chair, Stephen Yandle, highlighted the swap as a "further important step" to ensure that scheme members’ benefits are "strongly secured" against improvements in life expectancy.

He continued: “De-risking the scheme will benefit all of our DB scheme members and will not affect any payments to members as they will continue to receive their pension as normal. This is a very positive step in providing additional security of members’ pensions.”

Adding to this, AXA UK head of pension strategy, Vikram Chatrath, commented: "We are pleased to continue to support the AXA UK Group Pension Scheme by leveraging our internal technical and operational expertise to secure members’ benefits.

"The collaboration with Hannover Re in implementing a deferred longevity swap, believed to be the first transaction of its type entered into by a pension fund trustee, assists in stabilising the capital position of AXA UK and furthers our commitment to proactively managing our non-core business risks.”

Willis Towers Watson, senior director for transactions, Shelly Beard, also noted that, as well as removing the "majority" of the scheme's remaining non-pensioners, the inclusion of non-pensioners is "very helpful" in providing increased cashflow certainty.

"Whilst pensioner longevity swaps have become relatively common place in the UK de-risking market since we led the first deal in 2009, this is the first whole of life longevity swap covering a material volume of non-pensioners and we expect significant appetite from other pension schemes to replicate the structure," she continued.

“It’s always a pleasure to work with a client that embraces innovation in the way AXA and the trustees do.

"The speed at which this transaction was completed, even with the additional structuring considerations from including non-pensioners, demonstrates that once an initial longevity swap has been completed, additional transactions can be completed quickly and efficiently."

“More widely," she added, "the longevity swap market remains buoyant and represents an opportunity for pension schemes to manage a material risk whilst retaining the flexibility to achieve the required investment returns to complete their journey plan.”

Indeed, analysis published today (18 March) found that longevity risk transfers by UK pension schemes reached a record level of £55.8bn in 2020, in turn driven by longevity swaps reaching £24.1bn.

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