HSBC’s UK pension fund has completed the second-largest longevity swap for a UK scheme, a £7bn (€7.6bn) deal with The Prudential Insurance Company of America (PICA).

The transaction was structured as an insurance contract with a Bermuda-based, HSBC-owned captive insurer, which reinsured the longevity risk with the Prudential Financial subsidiary.

The deal covers half of the HSBC scheme’s pensioner liabilities. The scheme is one of the biggest in the UK with more than €30bn in assets.

Russell Picot, chair of the HSBC Bank (UK) Pension Scheme, said the transaction was “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,” Picot added.

According to a statement from PICA, the deal was the first captive longevity reinsurance transaction for a pension scheme associated with a major bank.

“The captive approach has become the strategy of choice for large pension schemes seeking to hedge longevity risk,” said Amy Kessler, PICA’s head of longevity risk transfer.

The largest longevity hedge for a UK pension scheme was a £16bn deal for the BT Pension Scheme in 2014, also reinsured with PICA.

Since then, British Airways’ Airways Pension Scheme, the Merchant Navy Officers’ Pension Scheme and Marsh & McLennan have all used the captive insurer model to offload £6.5bn in combined longevity risk.

According to PICA, creating a company-owned insurance entity allows a pension scheme to “efficiently access the deep and liquid longevity reinsurance market”.

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

Other types of de-risking have also become more affordable for pension schemes. Last week British American Tobacco announced it had offloaded £3.4bn-worth of pension risk, with Rolls-Royce, Pearson and Marks & Spencer also having struck deals this year. 

Mark Thompson, the former chief investment officer of HSBC’s UK pension scheme, left the bank in June and is to become the permanent CIO for the London CIV in September.

HSBC Holding’s group chief executive, John Flint, stepped down “by mutual agreement with the board” yesterday. 

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