Lloyds Banking Group Pensions Trustees Limited has entered into two longevity insurance and reinsurance arrangements, covering a combined £5.1bn of liabilities.

The deals, which mark the group's third and fourth longevity hedging transactions, cover £2.1bn and £3bn of pensioner liabilities in the Lloyds Bank Pension Scheme No.2 Scheme and the HBOS Final Salary Pension Scheme, respectively.

Both transactions are structured as insurance policies with Rothesay Life Plc as the insurer, while reinsurance was provided by Pacific Life Re International Limited (Pacific Life Re) and an insurance subsidiary of Prudential Financial, Inc, for Lloyds No.2 and HBOS, respectively.

Building on previous insurance and reinsurance arrangements agreed by the trustee in 2020 and 2022, the deals are expected to further protect both pension schemes from the cost of unexpected increases in the life expectancy of its members.

However, the trustee confirmed that the decision to enter into these transactions will not change the pension benefits that will be paid to members, and all pensioners will continue to receive their pensions each month as normal.

Commenting on the deals, trustee director and chair of the investment and funding committee, Vicky Paramour, said: “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.

"The selection of Rothesay, Pacific Life Re. and PFI followed a fair, robust and transparent review of the longevity insurance and reinsurance options available across the market.”

WTW lead adviser to the trustee, Matt Wiberg, also highlighted the deal as a "significant step" in the trustee's strategy to reduce longevity risk.

"These transactions were completed with separate reinsurers in a very short space of time and demonstrates continued improvements in the efficiency of contracting in the longevity swap market, particularly for schemes that have previously completed longevity swaps," he said.

Adding to this, Rothesay head of reinsurance, Ben Howe, stressed the importance of collaboration, citing the deal as demonstration of the "continued high demand for longevity protection for UK pension schemes as part of their wider strategy to mitigate potential funding volatility".

"A collaborative and solutions-led approach across all parties, with legal advice provided by Eversheds Sutherland, facilitated a timely and efficient process in the completion of both insurance and reinsurance arrangements," he continued.

Pacific Life Re business development director, Howie Timothy, added: “It was a great pleasure to support the trustee in achieving another major de-risking milestone.

"Having worked with the trustee on their first longevity hedge in 2019/20, we were pleased to see how previous hard work can pave the way for a smooth and efficient second execution. Our many thanks to all those who have made this transaction a success.”

This article originally appeared on our sister title, Pensions Age.

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