Zurich strikes market-first longevity swap deal together with Hymans Robertson and Hannover Re
December 17, 2019
- Zurich pioneers new form of longevity swap, as it completes latest transaction
Leading UK and global insurance company, Zurich has completed a longevity swap covering around £800 million of pensioner liabilities for a FTSE100-sponsored pension scheme.
The transaction will protect the pension scheme against the risk of rising costs as a result of pensioner and dependant members living longer than expected. An undisclosed majority share of the longevity risk has been reinsured with Hannover Re.
The transaction was structured to the specific requirements of the Trustee and sponsoring employer of the pension scheme. In a market first, it optimised the efficiencies for the pension scheme through a combination of allowing the scheme to have exposure to Hannover Re’s credit risk, and to benefit from Zurich retaining a substantive minority share of the longevity risk. This is via a product being referred to as “Enhanced Pass Through”, whilst providing the scheme the benefits of transacting with a UK regulated insurance company.
Zurich is unique in the market as the only UK Insurer with a dedicated longevity swap platform. The insurer has transacted eight longevity swaps over the last five years, with more in the pipeline.
Hymans Robertson acted as lead transaction adviser, 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 solution allows large pension schemes to efficiently access the reinsurance market through the comfort and benefits of a UK regulated insurance company. It is a testament to all involved and the simplicity of our solution that this transaction was quick and simple to execute.
“This is the first ‘Enhanced Pass Through’ transaction, in which an insurer retains a substantive share of the longevity risk, a model which ensures that Zurich can be competitive in the market for some of the largest transactions, while allowing schemes to benefit from the security, governance, and controls associated with UK insurance companies.”
Baljit Khatra, Hymans Robertson, lead adviser to the Trustee, said: “We are pleased to have helped the Trustee hedge the Scheme’s longevity risk efficiently. We worked closely with the Trustee and sponsoring employer to negotiate this first ‘Enhanced Pass Through’ transaction with Zurich, helping the Scheme achieve its objectives, diversify its counterparty exposure, and also retain flexibility over its future de-risking journey. The Zurich solution ticked all the boxes a captive alternative would have ticked with a number of advantages, and was selected following a thorough broking process. Zurich’s collaborative approach led to a smooth and quick implementation despite this being a new structure with a significant proportion of overseas lives”
Claude Chèvre, the responsible member of Hannover Re’s Executive Board, said, “We have successfully joined forces with Hymans Robertson and Zurich in order to provide the required risk protection to this pension scheme. As the transaction covers a significant proportion of non-UK overseas scheme members, Hannover Re was able to demonstrate its capability to act as a go-to partner for longevity solutions in an international context. The structure developed by Zurich presents an attractive alternative to the existing captive solutions. We are more than happy to support the longevity market not only with risk capacity but also with our expertise.”
Legal advice was provided to Zurich by Pinsent Mason, the pension scheme by CMS.
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Leading UK and global insurance company, Zurich has completed a longevity swap covering around £800 million of pensioner liabilities for a FTSE100-sponsored pension scheme.
The transaction will protect the pension scheme against the risk of rising costs as a result of pensioner and dependant members living longer than expected. An undisclosed majority share of the longevity risk has been reinsured with Hannover Re.
The transaction was structured to the specific requirements of the Trustee and sponsoring employer of the pension scheme. In a market first, it optimised the efficiencies for the pension scheme through a combination of allowing the scheme to have exposure to Hannover Re’s credit risk, and to benefit from Zurich retaining a substantive minority share of the longevity risk. This is via a product being referred to as “Enhanced Pass Through”, whilst providing the scheme the benefits of transacting with a UK regulated insurance company.
Zurich is unique in the market as the only UK Insurer with a dedicated longevity swap platform. The insurer has transacted eight longevity swaps over the last five years, with more in the pipeline.
Hymans Robertson acted as lead transaction adviser, 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 solution allows large pension schemes to efficiently access the reinsurance market through the comfort and benefits of a UK regulated insurance company. It is a testament to all involved and the simplicity of our solution that this transaction was quick and simple to execute.
“This is the first ‘Enhanced Pass Through’ transaction, in which an insurer retains a substantive share of the longevity risk, a model which ensures that Zurich can be competitive in the market for some of the largest transactions, while allowing schemes to benefit from the security, governance, and controls associated with UK insurance companies.”
Baljit Khatra, Hymans Robertson, lead adviser to the Trustee, said: “We are pleased to have helped the Trustee hedge the Scheme’s longevity risk efficiently. We worked closely with the Trustee and sponsoring employer to negotiate this first ‘Enhanced Pass Through’ transaction with Zurich, helping the Scheme achieve its objectives, diversify its counterparty exposure, and also retain flexibility over its future de-risking journey. The Zurich solution ticked all the boxes a captive alternative would have ticked with a number of advantages, and was selected following a thorough broking process. Zurich’s collaborative approach led to a smooth and quick implementation despite this being a new structure with a significant proportion of overseas lives”
Claude Chèvre, the responsible member of Hannover Re’s Executive Board, said, “We have successfully joined forces with Hymans Robertson and Zurich in order to provide the required risk protection to this pension scheme. As the transaction covers a significant proportion of non-UK overseas scheme members, Hannover Re was able to demonstrate its capability to act as a go-to partner for longevity solutions in an international context. The structure developed by Zurich presents an attractive alternative to the existing captive solutions. We are more than happy to support the longevity market not only with risk capacity but also with our expertise.”
Legal advice was provided to Zurich by Pinsent Mason, the pension scheme by CMS.
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