Heineken completed a £2.4 billion ($3.6 billion) longevity swap transaction with Friends Life, part of Aviva Group, to protect against the risk of retirees in its pension fund living longer than expected.
The deal covers all retiree liabilities of the Scottish & Newcastle Pension Plan, Edinburgh — around 19,000 retirees. Neil Parfrey, head of pensions at Heineken, said in an e-mail that the Scottish and Newcastle Pension Plan had total assets of about £2.6 billion.
A statement by Towers Watson, which led the transaction as adviser to the joint trustee and company working group, said that new capacity within the insurance industry had been accessed as part of the deal.
Ian Aley, head of pension transactions at Towers Watson, explained in a telephone interview that the transaction had broken new ground on two levels. “It is a new party taking the risk, in Aviva,” he said. “And unlike the transactions that we have seen to date, where longevity risk has been written by the insurer or bank and passed entirely to the reinsurance market; here the counterparty — Aviva — is retaining an element of the risk.”
He said the insurer had transferred some of the risk to reinsurer Swiss Re, “but the pension plan is facing Aviva rather than reinsurers.”
Mr. Aley said trustees had looked at a range of possibilities, but had “concise criteria of what they wanted to achieve,” in part the cost element.
“By hedging against longevity, we have reduced a significant amount of the plan’s risk should the overall life expectancy of members exceed our projections,” said Mr. Parfrey in the statement. “This should help bring peace of mind to plan members, and we are delighted that it has been achieved in a cost efficient manner.”
Travers Smith acted as legal adviser to the working group. Linklaters acted as the legal adviser to Friends Life.
