The transaction is the sixth Zurich has carried out to help small firms offload longevity risk in the last 18 months – taking the total pension liabilities traded to close to £1.5billion.
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 fund living longer than expected. The hedge is “named life” meaning it covers around 1,000 named pensioners and future dependants.
Zurich has reinsured 75% of the longevity hedge with SCOR and retained 25%. Mercer acted as lead adviser to the Trustee on the deal.
Jim Sykes, CEO of Zurich Assurance, said: “There has never been more uncertainty about the direction of travel for mortality rates.
“Despite recent reports suggesting life expectancy is not improving as quickly as had previously been envisaged, we are continuing to see strong demand from smaller-sized pension schemes who want to cost-effectively manage liabilities arising from longevity risk.
“With more than £1.5billion of transactions completed in the last 18 months, we’re expecting demand to continue growing, and look forward to meeting the market’s needs in this area.”
Harvey Francis, the Chairman of the Trustee said: “The Trustee is pleased to take this opportunity to hedge longevity risk for its pensioners and their dependents. This transaction helps to improve the security of benefits for all members by removing the uncertainty of future costs to the Fund arising from existing pensioners living longer than forecast.
Suthan Rajagopalan, lead transaction adviser and Head of Longevity Reinsurance at Mercer, commented: “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.”
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