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The Actuary The magazine of the Institute & Faculty of Actuaries

HSBC completes £7bn risk transfer

HSBC’s UK pension scheme has completed a £7bn longevity risk transfer with the Prudential Insurance Company of America (PICA), covering half of its pensioner liabilities.

Sector has reached pivotal moment ©iStock

This is the second-largest longevity hedge for a British scheme, and was secured through an HSBC-owned captive insurer in Bermuda, which reinsured the risk with PICA.

It is the first time that a pension scheme associated with a major bank has entered into such a transaction, and signals a growing trend of large schemes using captives.

The arrangement protects the HSBC scheme against the costs of pensioners or their dependants living longer than initially expected.

“This is a continuation of our de-risking journey and we are pleased to have completed the deal at attractive pricing," HSBC Bank (UK) Pension Scheme chair, Russell Picot, 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.”

The top 10 most valuable longevity transfers by UK pension schemes are shown below:

top 10
Source: WTW

PICA has completed approximately $75bn (£62bn) in international longevity reinsurance transactions since 2011.

The Prudential Financial subsidiary said that creating a company-owned captive insurer allows pension schemes to efficiently access the deep and liquid longevity reinsurance market.

Willkie Farr & Gallagher LLP advised PICA during the latest deal, while Sacker and Partners LLP and Willis Towers Watson (WTW) advised the HSBC pension scheme.

“Market demand for the certainty that comes with pension and longevity risk transfer has increased as Brexit nears,” said David Lang, PICA’s transaction lead on the deal.

“The UK is experiencing the greatest level of pension de-risking activity in history and we are proud to support this growing market with our capital, our capacity and our experience in helping pension schemes enhance retirement security for their members.”

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