Sackers advises Trustee of HSBC Bank (UK) Pension Scheme on £7bn longevity swap with PICA

The HSBC Bank (UK) Pension Scheme (“the Scheme”) has closed a longevity swap transaction with The Prudential Insurance Company of America (“PICA”) a subsidiary of Prudential Financial, Inc. (PFI) to manage longevity risk in relation to c£7 billion of pensioner liabilities, the second largest deal ever for a UK pension scheme. The arrangement provides long term protection to the Scheme against costs resulting from pensioners or their dependants living longer than initially expected, enhancing security for Scheme members and covers half the pensioner liabilities.

The longevity insurance policy will form part of the Scheme’s investment portfolio.  The transaction is structured as an insurance contract with a HSBC-owned captive insurer in Bermuda and onwards reinsurance to PICA.

Russell Picot, Chair of the HSBC Bank (UK) Pension Scheme, said: “I am delighted that the Trustee has taken an important step to ensure that our members’ benefits are strongly secured against improvements in life expectancy.  This is a continuation of our de-risking journey and we are pleased to have completed the deal at attractive pricing and working in partnership with our sponsor.  This is a positive step in providing additional security of members’ pensions.”

Paul Philips, Partner, legal adviser to the Trustee, said: “We are delighted to have assisted the Trustee in this transaction, which marks a significant development in the longevity market through both its size and the use of a Bermudan captive insurer.”

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