Hannover Re and AXA UK in £3bn longevity swap, a non-pensioner first

The AXA UK Group Pension Scheme has entered into a £3 billion longevity swap with reinsurance firm Hannover Re, in a new first for the longevity risk transfer market, a largely non-pensioner deal.

Typically, longevity swaps have been focused on pensions in payment, so transferring the risk of longevity from active pensioners or beneficiaries of pensions.

This transaction covers the AXA UK Group Pensions Scheme for longevity risk associated with pensions that may come into payment after March 31st 2019, so the majority of the longevity risk transferred is related to non-pensions, those soon to draw their pension benefits.

It means that almost 93% (the £3 billion) of the pension scheme’s liabilities are now protected against the chance of members living longer than anticipated once they come into payment, AXA said today.

Hannover Re provided the reinsurance capacity to underpin the longevity swap arrangement.

The longevity swap closed on February 27th 2021 and form’s part of the AXA pension scheme’s investment portfolio, building upon previous longevity risk transfer transactions undertaken to protect pensions that had already come into payment by March 31st 2019.

“I am happy that the AXA UK Group Pension Scheme has taken a further important step to ensure that our scheme members’ benefits are strongly secured against improvements in life expectancy. De-risking the scheme will benefit all of our DB scheme members and will not affect any payments to members as they will continue to receive their pension as normal. This is a very positive step in providing additional security of members’ pensions,” Stephen Yandle, Chair, AXA UK Pension Trustees said.

“We are pleased to continue to support the AXA UK Group Pension Scheme by leveraging our internal technical and operational expertise to secure members’ benefits. The collaboration with Hannover Re in implementing a deferred longevity swap, believed to be the first transaction of its type entered into by a pension fund trustee, assists in stabilising the capital position of AXA UK and furthers our commitment to proactively managing our non-core business risks,” Vikram Chatrath, Head of Pension Strategy, AXA UK added.

“We have successfully teamed up with the AXA UK Group Pension Scheme and AXA UK to provide protection for its scheme members not yet in payment. We are more than happy to support our clients with risk capacity in areas where our clients particularly need our protection. Our long term expertise in the longevity market enables us to provide solutions for market segments otherwise difficult to place. This transaction proves once again Hannover Re’s capability and commitment to grow its global longevity business,” Claude Chèvre, Executive Board Member at reinsurance provider Hannover Re also commented.

Willis Towers Watson and Linklaters LLP acted as lead advisors to the transaction.

Willis Towers Watson called the longevity swap “a market first, with over 95% of the 16,000 members covered being non-pensioners.”

Shelly Beard, Senior Director for Transactions at Willis Towers Watson and lead adviser, said, “It’s always a pleasure to work with a client that embraces innovation in the way AXA and the Trustees do. This is the third longevity swap we have partnered with the Scheme on over the last 6 years. The speed at which this transaction was completed, even with the additional structuring considerations from including non-pensioners, demonstrates that once an initial longevity swap has been completed, additional transactions can be completed quickly and efficiently. The collaborative approach taken by the AXA UK, Linklaters and Hannover Re teams was also incredibly beneficial to the project.

“As well as removing the majority of the Scheme’s remaining longevity risk, the inclusion of non-pensioners is very helpful for the Scheme’s investment strategy as it provides increased cashflow certainty. Whilst pensioner longevity swaps have become relatively common place in the UK de-risking market since we led the first deal in 2009, this is the first whole of life longevity swap covering a material volume of non-pensioners and we expect significant appetite from other pension schemes to replicate the structure.

“More widely, the longevity swap market remains buoyant and represents an opportunity for pension schemes to manage a material risk whilst retaining the flexibility to achieve the required investment returns to complete their journey plan.”

Read about many historical longevity swap and reinsurance transactions in our Longevity Risk Transfer Deal Directory.