Hogan Lovells Advises ITV on Long Dated Pension Scheme Longevity Swap

LONDON, 1 September 2011 - Hogan Lovells has advised ITV in relation to a longevity swap entered into between the Trustee of ITV's pension scheme and Credit Suisse which closed on Friday 19 August. It is one of the few transactions of its kind, and one of the most complex completed to date. 

Whilst pension scheme transactions traditionally cover both asset and longevity risk, the longevity swap provides ITV with a means of concentrating the protection on longevity risk, resulting in greater flexibility for the Trustees in the future. Longevity protection has typically been provided by the insurance market, and insurers remain the major providers of this protection, with Hogan Lovells previously advising clients including Prudential, CIS, Equitable Life and AXA-Winterthur on several types of longevity transactions in the insurance sector.

However this transaction continues a growing trend in which longevity protection is provided by banks through the use of derivatives technology. The use of derivatives gives the parties more flexibility to cover different types of risk and also increases the number of potential participants in the market. This is a positive development for pension scheme trustees as it is expected to increase competitive tension and reduce the price of longevity protection.

Because the role of banks as providers of longevity risk protection is relatively new, longevity risk is not yet a wide-spread asset class in the derivatives market, and the commercial terms and documentation for longevity swaps have not yet achieved much standardisation.  Transactions such as this one therefore require the development of novel provisions in order to adapt existing longevity risk transfer mechanics for use in this context. The successful completion of this transaction required a dedicated cross-practice team, combining derivatives, insurance and pensions expertise, working over a number of months of planning and negotiation.

Under the terms of the swap, ITV and the Trustee of the ITV Pension Scheme have removed the risk of a significant proportion of its defined benefit pensioner population living longer than expected. The longevity swap is another measure implemented by ITV as part of the long-term strategy to manage the risks and uncertainties associated with the Scheme and Hogan Lovells has been active in advising ITV on this strategy as a whole.

The Hogan Lovells team advising on the deal was led by debt capital markets partner James Doyle, assisted by pensions partner Katie Banks and corporate insurance Of Counsel Steven McEwan, supported by pensions senior associate Edward Brown and debt capital markets senior associate Jennifer O'Connell.

Commenting on the transaction James said:

"We are pleased to have advised ITV on this transaction which is significant both in terms of its long period and high value; and in what it means for the derivatives, corporate insurance and pensions markets. The nature of the transaction led to a particularly complex and fascinating set of negotiations which were designed to secure the best possible outcome for our client ITV and for the scheme Trustee."

Katie added:

"The very fact of the swap itself and its terms are unusual which made it an exciting transaction on which to work and one that stands out as being unique within the pensions industry."

Steven commented:

"This transaction proves that longevity swaps have become a realistic alternative to traditional insurance solutions.  Insurance solutions still have some advantages, but in future insurers will be harder pressed to maintain their lead in this market."

Hogan Lovells led the negotiations with Credit Suisse (advised by Linklaters) on behalf of their client ITV and worked with Sackers & Partners, who advised the Trustee of the ITV Pension Scheme.


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