Zurich in £2bn longevity swap with National Grid

by Artemis on May 15, 2018

Insurer Zurich has completed its largest ever longevity swap arrangement, an intermediated arrangement that covers more than £2 billion of pensioner liabilities for the UK’s National Grid Electricity Group of the Electricity Supply Pension Scheme (ESPS).

The longevity swap will protect the National Grid against the risk of around 6,000 pensioners and future dependent members living longer than forecasted.

A significant proportion of the longevity risk assumed has been transferred by Zurich through a longevity reinsurance deal with Canada Life Reinsurance.

Aon acted as the lead transaction advisor for the longevity swap and reinsurance arrangement, providing both actuarial and investment services, including negotiating the insurance terms with Zurich and broking the reinsurance with Canada Life Re.

This is Zurich’s seventh longevity swap arrangement in less than two years and it takes the longevity liabilities hedged for pension schemes by Zurich to around £3.5 billion.

This is also the largest such longevity swap and reinsurance deal that Zurich has been involved in, having focused on small to mid-sized pensions in the past.

Greg Wenzerul, Zurich’s Head of Longevity Risk Transfer, commented, “This is our first bespoke intermediated longevity swap and by far our largest deal to date. I’m delighted that our solution fitted the National Grid Electricity Group Trustee’s requirements. The transaction transfers the material risk of members living longer than expected from the pension scheme to Zurich Assurance. The advantages of our intermediated solution include efficiency of execution due to the clean transfer of risk, a clear route to dealing with changing future circumstances, and the inherent benefits of transferring risk to a UK regulated insurer. We are planning to further develop our presence in the large bespoke de-risking market.”

Jon Carlton, Chair of the Group Trustee, added, “The Group Trustee is pleased to have been able to significantly reduce one of the key risks that any pension scheme faces, namely the uncertainty on how long members will actually live in practice. By working in close partnership with National Grid and our advisers, we have successfully put in place this insurance policy with Zurich. The policy will provide increased certainty on the cost of providing current benefits, which will therefore reduce the funding risks faced by the Group Trustee and National Grid in the future.”

Andrew Bonfield, Finance Director, National Grid plc, said, We are very pleased to announce the completion of this longevity insurance which covers around two-thirds of the liabilities of the National Grid Electricity Group pension liabilities. This demonstrates our ongoing commitment to the security of our pension arrangements, and represents a significant step in our long-term strategy to manage down the level of pensions risk for National Grid shareholders and electricity consumers.”

Martin Bird, Senior Partner and Head of Risk Settlement at Aon, commented on the deal, “Notable features of this deal included the creation of a streamlined framework suitable for use within the Electricity Supply Pension Scheme arrangements, as well as an attractive price, reflecting a period of significant price correction in the longevity reinsurance market.

“The transaction also demonstrates the opportunities currently available to pension schemes to hedge longevity risk cost effectively via a structure under which the scheme retains control of and flexibility over its investment strategy. It’s great that we have been able to support the Group Trustee and National Grid with the successful execution of this transaction. Zurich’s entry into the large scale longevity risk transfer arena is good news for the wider market.”

Jeff Poulin, Global Head of Canada Life Reinsurance, stated, “We are delighted to have supported Zurich on their first large bespoke longevity transaction. It was a pleasure to work with Zurich and Aon to put an attractive transaction in place for the Group Trustee. This transaction builds on our existing book of UK longevity risk and we look forward to continuing to add to the portfolio in the coming months and years.”

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

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