Carillion PLC, Wolverhampton, England, entered into a longevity swap for its five defined benefit pension funds with Deutsche Bank AG valued at around £1 billion ($1.6 billion), according to a news release by Mercer, which advised the plans' trustees.
The deal covers about 50% of the pension funds' liabilities, said Suthan Rajagopalan, principal, financial strategy group at Mercer.
Mr. Rajagopalan said the swap covers retired members of five separate pension funds: the Alfred McAlpine Pension Plan, Carillion B Pension Scheme, Carillion Staff Pension Scheme, Mowlem Staff Pension and Life Assurance Scheme, and Planned Maintenance Engineering Ltd Staff Pension and Assurance Scheme. The consultant said the pension funds range in size from about £50 million to £400 million.
The swap hedges against the risk of rising costs as a result of the current retirees in the pension funds living longer than expected. The deal was priced as a single plan but executed as five separate swap contracts to reduce costs but retain flexibility, according to the news release. It covers around 9,000 retirees.
PwC's pension team advised Carillion. A spokesman for Carillion could not be reached for further comment.
“We are expecting potentially another two or three (longevity deals) to transact and announce before the end of this year. It is going to be a bumper year,” Mr. Rajagopalan said.
Longevity swaps so far this year amount to a total of £5 billion notional, Mr. Rajagopalan said. He said the expected deals for the remainder of 2013 could add between a notional £3 billion to £5 billion to that total. He added that there is “market noise” that one deal could be announced next week.
