The UBS (UK) Pension and Life Assurance Scheme has entered into a £1.4 billion longevity swap arrangement, with global player Zurich acting as the insurer for the transaction and Canada Life Re providing reinsurance capital.
The longevity swap arrangement covers roughly £1.4 billion of the UBS pension schemes defined benefit (DB) pensioner liabilities and was arranged with the assistance of Mercer, acting as the lead commercial and investment adviser to the Trustee, and Allen & Overy LLP acting as legal transactional counsel.
The longevity swap arrangement was structured as a “pass through” insurance contract with Zurich Assurance Ltd., with the risk immediately 100% backed by reinsurance from Canada Life Re through its The Canada Life Assurance Company entity.
The transaction will protect the pension scheme against the risk of its covered members or their dependants living longer than expected and had been tailored to balance the Trustee’s key requirements of maximising future flexibility, control and security whilst at the same time minimising cost, governance and operational burden.
These longevity swap pass through structures see an insurer or sometimes captive entity intermediating, with 100% of the longevity risk transferred ultimately flowing to sources of reinsurance capital.
As a result they provide a more efficient way for pensions to access longevity reinsurance capacity and bring that capacity closer to the source of risk.
Richard Hardie, Chair of the Trustee to the Scheme, added, “This transaction is an important building-block in our plan to reduce the uncertainties facing the DB section of our Scheme as it approaches maturity. It adds considerably to the security of all DB members’ pensions; the longevity risk attaching to approximately half its liabilities (broadly its pensioners) has been removed. Until now all the longevity risk in the Scheme has been unhedged. We are delighted to have completed this agreement on terms satisfactory to all parties with continuing excellent support from the Sponsor, UBS. The Trustee is very grateful to its advisers for seeing the market opportunity and for tailoring the complex structure to its needs.”
Jeff Poulin, Global Head of Canada Life Reinsurance, also said, “We are pleased to have worked with the Trustee’s advisors, Mercer, on this innovative transaction structure, to support both Zurich and the UBS Pension Trustee in protecting the UBS pensioners. This longevity transaction adds to Canada Life Reinsurance’s UK longevity portfolio and solidifies our position as a leader in this marketplace.”
Greg Wenzerul, Zurich’s Head of Longevity Risk Transfer, further explained, “We adapted Zurich’s large-scheme longevity swap solution to fit the Trustee’s requirements for a flexible, long-term insurance solution to hedge the Scheme’s longevity risk in a cost effective manner. The Trustee, Canada Life Reinsurance and their respective advisers deserve huge credit for the efficient execution of this transaction during a period of severe turbulence and uncertainty, the nature of which further underlines the benefit and security of using a UK regulated insurer for longevity hedging.”
Caroline Stewart, UK CFO UBS AG, stated, “UBS AG as sponsor to the Scheme was consulted throughout the process and is fully supportive of the Trustee’s strategic risk management objectives and investment decision to materially reduce longevity risk via this type of transaction.”
Suthan Rajagopalan, Partner at Mercer and lead adviser to the Trustee, commented on the completion of the deal, “Longevity risk management has been on the Trustee’s agenda for several years, and we are proud to have advised on this alongside broader strategic de-risking. This transaction was the result of a thorough review of the Scheme’s longevity risk exposures and the options, initially including bulk annuities, for reducing these, complementing the Trustee’s ongoing derisking programme and investment strategy.”
Read about many historical longevity swap and reinsurance transactions in our Longevity Risk Transfer Deal Directory.