Lloyds Banking Group Expands Longevity Insurance Strategy
Lloyds Banking Group Pensions Trustees Limited has successfully executed its third and fourth longevity hedging insurance and reinsurance transactions, securing protection for an additional £5.1 billion of liabilities. This strategic move enhances the safeguarding of Lloyds Banking Group pension schemes against the financial implications of increasing life expectancy among its members.
The newly implemented insurance and reinsurance agreements cover £2.1 billion of pensioner liabilities within the Lloyds Bank Pension Scheme No.2 and £3.0 billion in the HBOS Final Salary Pension Scheme. Importantly, the benefits for scheme members remain unchanged, with regular monthly pension payments continuing as before.
The transactions are structured as insurance policies with Rothesay serving as the insurer. Reinsurance support is provided by Pacific Life Re for Lloyds No.2, and an insurance subsidiary of US-based PFI, a prominent multinational financial services company, for HBOS.
Trustee and Adviser Insights
Vicky Paramour, Trustee Director and Chair of the Investment & Funding Committee, commented: “We are pleased to have successfully completed these transactions which further reduce the Schemes’ exposure to longevity risk and make the Schemes more secure to the benefit of all members.” She added that the selection of Rothesay, Pacific Life Re, and PFI followed a fair, robust, and transparent evaluation of available market options.
Matt Wiberg from WTW, leading adviser to the Trustee, remarked: “The transactions with Pacific Life Re and PFI signify a crucial advancement in the Trustee’s strategy to mitigate longevity risk. It has been a pleasure to guide the Trustee on this strategy over many years, including collaborating closely with the Trustee and the team at A&O Shearman to negotiate these recent transactions.” He highlighted the efficiency improvements in the longevity swap market, especially for schemes with prior experience in longevity swaps.
Background and Previous Transactions
These recent transactions build on earlier longevity hedging efforts by Lloyds Banking Group Pensions Trustees Limited, including arrangements made in 2020 (£10 billion) and 2022 (£5.5 billion) across the Lloyds Banking Group pension schemes.
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