Zurich strikes £2bn intermediated longevity swap deal with National Grid
Swindon, May 15, 2018
Leading UK insurance company, Zurich has completed an intermediated longevity swap covering more than £2billion of pensioner liabilities of the National Grid Electricity Group of the Electricity Supply Pension Scheme (ESPS).
The transaction will protect National Grid against the risk of rising costs as a result of around 6,000 pensioners and future dependent members living longer than expected. Zurich has reinsured a significant proportion of the longevity risk with Canada Life Reinsurance.
Aon acted as lead transaction advisor, providing actuarial and investment services, including negotiating the insurance terms with Zurich and broking the reinsurance.
Greg Wenzerul, Zurich’s Head of Longevity Risk Transfer, said, "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, commented. "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, added, "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, said, "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, said, "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.”
This is the seventh longevity swap Zurich has entered into in under two years, taking the total liabilities hedged by pension schemes with Zurich to around £3.5bn.
In the past, Zurich has focussed on smaller and mid-sized UK pension schemes, where it has developed a solution opening up de-risking to this end of the market for the first-time.
Legal advice was provided to Zurich by CMS, the Group Trustee by DLA Piper and Mayer Brown, and to Canada Life Reinsurance by Herbert Smith Freehills.
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Notes to Editors
Zurich in the UK
Zurich provides a suite of general insurance and life insurance products to retail and corporate customers.
We supply personal, commercial and local authority insurance through a number of distribution channels, and offer a range of protection, retirement and savings policies available online and through financial intermediaries for the retail market and via employee benefit consultants for the corporate market.
Based at around 20 locations across the UK - with large sites in Birmingham, Cheltenham, Farnborough, Glasgow, London, Swindon and Whiteley - Zurich employs approximately 6,000 people in the UK.
Corporate Responsibility is an integral part of how we do business and Zurich understands the need to set and maintain high standards of integrity towards our customers, employees, local communities, society and the environment. As a result of this work, Zurich holds the Business in the Community's ‘CommunityMark’. This award is the UK's only national standard that publicly recognises excellence in community investment which in Zurich's case is mainly delivered by the Zurich Community Trust, the charitable arm of Zurich in the UK. For more information about the Zurich's commitment to Corporate Responsibility and the Trust's work, please visit our website here.
Zurich Insurance Group (Zurich) is a leading multi-line insurer that serves its customers in global and local markets. With about 54,000 employees, it provides a wide range of property and casualty, and life insurance products and services in more than 210 countries and territories. Zurich’s customers include individuals, small businesses, and mid-sized and large companies, as well as multinational corporations. The Group is headquartered in Zurich, Switzerland, where it was founded in 1872. The holding company, Zurich Insurance Group Ltd (ZURN), is listed on the SIX Swiss Exchange and has a level I American Depositary Receipt (ZURVY) program, which is traded over-the-counter on OTCQX. Further information about Zurich is available at www.zurich.com.
The National Grid Electricity Group of the Electricity Supply Pension Scheme
The Electricity Supply Pension Scheme (ESPS) is comprised of 23 actuarially and legally separate "Groups", of which the National Grid Electricity Group is one. The sponsor to the National Grid Electricity Group is National Grid Electricity Transmission plc, part of National Grid plc.
Aon plc (NYSE:AON) is a leading global professional services firm providing a broad range of risk, retirement and health solutions. Our 50,000 colleagues in 120 countries empower results for clients by using proprietary data and analytics to deliver insights that reduce volatility and improve performance.
About Canada Life Reinsurance
Canada Life Reinsurance is an operating division of Great-West Lifeco Inc., a diversified financial services holding company headquartered in Winnipeg, Canada. Great-West Lifeco and its insurance subsidiaries have received strong ratings from major rating agencies.