The HSBC Bank (UK) Pension Scheme has capped the risk on £7bn worth of pensioner liabilities through the novel use of a Bermudan captive insurer and a US reinsurer.

The deal, which is claimed to be the second largest deal ever for a UK pension scheme, protects the scheme against costs resulting from pensioners or their dependants living longer than initially expected.

In a first for the pensions industry a HSBC-owned captive insurer in Bermuda is providing the scheme with the principal insurance, while Prudential Insurance Company of America is providing reinsurance.

The longevity insurance policy will form part of the scheme’s investment portfolio and covers half of pensioner liabilities.

HSBC Bank (UK) Pension Scheme chair Russell Picot said the deal was a continuation of its de-risking journey and it had been struck at an attractive price.

Willis Towers Watson’s lead adviser to the HSBC trustee was Ian Aley. He said: “We worked with the trustee to achieve a highly competitive reinsurer selection process, following which we guided the trustee through the analysis to select a Bermudan captive as the most efficient structure for the deal, a market first.”

Sackers was the legal adviser to the trustees. Paul Philips of the firm similarly described the deal as significant development in the longevity market through both its size and the use of a Bermudan captive insurer.

The scheme’s sponsor also put on record their approval of the deal. HSBC UK Bank plc, chief risk officer, James Calladine said: “This transaction marks another sensible and positive step on the scheme’s de-risking journey, with terms that make financial sense for both the Trustee and for the scheme’s sponsor.”

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