The Scottish & Newcastle Pension Plan has agreed a £2.4bn (€3.3bn) longevity swap with UK insurer Friends Life to shift risk of pensioners exceeding longevity expectations.

The scheme, now part of Heineken after its takeover of Scottish & Newcastle in 2009, has insured longevity risk for approximately 19,000 pensioners – almost half its membership.

Heineken dealt with Friend Life, part of the Aviva Group, in an uncommon arrangement, with the primary insurer retaining some risk.

Previously, pension schemes would arrange longevity swap transactions with reinsurers via primary insurers or banks, or directly transact using an insurance company cell.

The scheme said it found previously unused capacity in the primary insurance market for longevity swaps and thus arranged a deal with Aviva.

Aviva said it partnered with Swiss Re for it to take on some risk but retain some exposure.

The scheme, which closed to future accrual in 2011, said the deal should help bring peace of mind to members.

Ian Aley, head of pension transactions at Towers Watson, who advised the parties involved, said the move to transact directly with Aviva was another example of innovation in the longevity risk market.

“Heineken has broken new ground with this transaction, identifying a new longevity counterparty in Aviva, which provided additional market capacity on this occasion,” he said.

Aley added that it was unusual to see a primary insurer take on the risk directly.

He said the trustees of the scheme realised a longevity swap would require a long-term relationship and, after approaching several insurance and reinsurance firms, felt comfortable using the newer deal structure with the UK-regulated firm.

The £2.4bn deal comes as the UK longevity swap market takes off in 2015, after seeing record deals last year.

The BT Pension Scheme created its own insurance company to transact directly with the reinsurance market in a £16bn arrangement.

This was part of a wave of longevity swaps between UK pension schemes and global reinsurers, started by Aviva’s reinsuring its own pension scheme in a £5bn deal with three reinsurers.

Four of the five longevity swaps in the £25.4bn market directly transacted with reinsurers.

US reinsurer, Prudential Financial, said it expected the longevity risk market to grow significantly as appetite spread across Europe, and also that unmediated deals would become the new norm.

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