£300m longevity swap completed by Zurich with SCOR backing

Global insurance player Zurich has completed another longevity swap transaction, helping a smaller UK pension plan to cover £300 million of its longevity related pension liabilities, with SCOR providing the reinsurance capacity to back the deal.

Zurich had already completed £740 million of longevity swaps since December 2015 using its ‘streamlined’ structure that helps smaller pension plans to more efficiently access sources of reinsurance capital. This £300 million deal takes the total to over £1 billion, suggesting that an ongoing pipeline of these streamlined longevity swaps is likely.

Zurich acts as the intermediary insurer and arranges the transactions with the support of advisory and consultancy Mercer, while a global reinsurance provider tends to sit at the back and takes on a majority percentage of the longevity risk from the deal.

In this case, which featured an unnamed UK pension plan, French reinsurance firm SCOR has reinsured 80% of the longevity risk while Zurich retained 20%.

This longevity hedge was structured as a ‘whole of life’ insurance policy, which protects against the risk of rising pension liabilities as a result of pensioners living longer than anticipated. The longevity hedge is a ‘named life’ structure, meaning it covers around 2,300 named pensioners and their future dependants.

Jim Sykes, Zurich’s Chief Operations Officer, commented; “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, lead transaction adviser and Head of Longevity Reinsurance at Mercer, added; “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 £50m announced in October 2016.

“Before these five transactions which total over £1 billion, named life longevity hedges were exclusive to only the largest schemes with over £400m of pensioner liabilities and deal sizes averaged £2bn. 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 £300m pensioner liabilities.”

Rupen Shah, SCOR’s Global Head of Longevity, also said; “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.”

Read about many historical longevity swap and reinsurance transactions in our Longevity Risk Transfer Deal Directory.