converted its longevity swap into a buy-in
LCP advised the LV= Employee Pension Scheme on the transaction, improving the security of members’ benefits whilst reducing capital volatility for its insurance company sponsor, LV=.
The Trustee had entered into a longevity swap in 2012 with ReAssure (which was then reinsured onwards within the Swiss Re group).
Over the following years, the asset strategy was de-risked as the funding level improved.
While this de-risking strategy increasingly stabilised the funding level, it also meant:
- The annual risk fee for the longevity swap became more significant in the context of the
Scheme’s lower expected return on its assets; and
- Increased volatility in the IAS19 surplus. This in turn led to increased volatility in the
amount of capital that LV= was required to hold, as a regulated financial institution.
What we did
We worked with LV=’s capital efficiency team and the Trustee’s investment advisers to determine the size and profile of buy-in that could be accommodated whilst optimising capital efficiency for LV=, avoiding a funding strain and enhancing member security.
We designed a bespoke insurer tender process in a busy buy-in market to maximise insurer engagement (and therefore competition) and efficiency for the transfer of the longevity swap.
We negotiated a robust price lock mechanism and asset delivery portfolio with the insurers, designed to weather the market volatility caused by the outbreak of Covid-19, saving over £10m in transaction costs associated with bespoke derivative contracts and assets held by the Scheme.
The longevity swap was converted into a £800m buy-in with Phoenix Life, and the competitive pricing achieved led to an improvement in funding and security of members’ benefits, whilst reducing capital volatility for LV=.
The swap conversion placed the Scheme a further significant step forward in its de-risking
How we can help
We are market leaders at each stage of de-risking, including planning, investment strategy, transactional services and wind up.
LCP LifeAnalytics is a unique tool that allows you to measure the longevity risk in your pension scheme.
We help pension scheme trustees and sponsors to determine the ultimate destination for their scheme and help them put together a plan to get there, including how to effectively manage the risks they face along the way.
Our intuitive, real-time pensions technology allows you to see the information you need when you need it, helping you to make decisions.