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Zurich strikes GBP300m longevity hedge

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Pensions provider Zurich has completed a longevity hedge swap covering GBP300 million of liabilities for an undisclosed UK pension plan.

The deal is the fifth transaction the insurer has completed to help small firms off load longevity risK.
 
Zurich has now traded over GBP1 billion of pension liabilities in just over a year.
 
Mercer acted as adviser on the transaction, which saw Zurich reinsure 80 per cent of the longevity hedge with SCOR and retain 20 per cent.
 
The hedge, structured as a whole of life insurance policy, will protect against the risk of rising costs as a result of the current pensioners of the pension plan living longer than expected. The hedge is “named life” meaning it covers around 2,300 named pensioners and future dependants.
 
Jim Sykes, Zurich’s chief operations officer, says: “We're delighted to be announcing another longevity hedge, just a few months after our last transaction. This deal demonstrates how using a panel of reinsurers really does provide competitive pricing for smaller liability transfers, and we are very pleased SCOR is our reinsurance partner this time.
 
“With five hedges announced in just over a year, our longevity business is a growing and complementary part of our corporate business, demonstrating our ability to retain longevity risk and deliver pensions solutions to a rapidly increasing number of employers.”   
 
Suthan Rajagopalan (pictured), lead transaction adviser and head of longevity reinsurance at Mercer, says: “This is the fifth streamlined longevity swap executed in about a year since the first such deal was announced in December 2015. This marks the first deal, on the platform set up by Mercer, where SCOR have been awarded the reinsurance and follows on from the smallest ever such deal at GBP50m announced in October 2016.
 
“Before these five transactions which total over GBP1 billion, named life longevity hedges were exclusive to only the largest schemes with over GBP400 million of pensioner liabilities and deal sizes averaged GBP2 billion. These deals pave the way to competitive longevity reinsurance pricing for small and medium sized schemes which are more exposed to so-called ‘concentration risk’ where there is potential for greater variability in members’ life expectancy due to diverse pension amounts. Mercer’s co-ordination of the project culminated in immediate reinsurance by Zurich with SCOR to minimise the longevity risk transfer cost for the trustees. This complements a dynamic investment de-risking strategy run by Mercer for the plan so is a significant step towards a ‘DIY pensioner buy-in’ never been achieved before for a deal of GBP300 million pensioner liabilities.”
 
Rupen Shah, SCOR’s global head of longevity, says: “SCOR’s large portfolio of mortality risk positions us as a natural holder of longevity risk. We are delighted to have secured our first transaction under the streamlined longevity swap platform Mercer has set up with Zurich. This diversifies the deployment of SCOR’s appetite for longevity risk alongside reinsurance of insurer annuity business and ‘traditional’ longevity swaps for larger pension scheme and positions SCOR well for future streamlined longevity swaps.”

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