PGL Pension Scheme conducts £900 million longevity swap

The trustees of the PGL Pension Scheme, Birmingham, England, hedged the longevity risk of £900 million ($1.5 billion) of liabilities with Phoenix Life.

The longevity swap covers about two-thirds of the £1 billion pension fund's total liabilities, said Matt Wilmington, partner in Aon Hewitt's risk settlement group, which was lead adviser to the trustees.

The pension fund's sponsor is the Phoenix Group, which owns the insurer Phoenix Life.

Half of the risk hedged by the longevity swap has been reinsured, according to Phoenix Life Group's half-year results, published Thursday. The name of the reinsurer could not be learned by press time.

According to the results, the pension fund entered into the longevity swap in June.

“The scheme is owned by an insurer, and they have moved the longevity risk out of the scheme and into the insurance vehicle,” Mr. Wilmington said. The reason, he said, is that it is more efficient from a capital perspective to have all the longevity risk on the insurer's books rather than with the pension fund. It is both mitigation of risk for the half that has been reinsured and capital efficiency for the half that has been retained by the insurer, he added.

CMS Cameron McKenna was lead legal adviser to the trustees.

In March, Aviva PLC, London, used its insurance vehicle as an intermediary between its pension fund and reinsurers, in a £5 billion longevity swap.

Executives at the Phoenix Group and the PGL Pension Scheme could not be reached for comment by press time.