Zurich has completed a £300m longevity hedge swap with an undisclosed defined benefit pension scheme.
The deal will see Zurich protect the defined benefit scheme against the risk of increasing costs as a result of increasing longevity.
The hedge is “named life”, which means it covers around 2,300 named pensioners and their future dependants.
It is the fifth such deal Zurich has made with a DB scheme.
It represents an alternative de-risking strategy to annuity buy-ins or buy-outs.
In total, Zurich has insured £1bn of DB pension liabilities in this way.
The deal, which was advised by pension consultant Mercer, saw Zurch reinsure 80 per cent of the longevity hedge with SCOR, while retaining the rest.
Jim Sykes, Zurich's chief operating officer, said the deal demonstrated that using a panel of reinsurers provided "competitive pricing for smaller liability transfers".
“With five hedges announced in just over a year, our longevity business is a growing and complementary part of our Corporate Business, demonstrating our ability to retain longevity risk and deliver pensions solutions to a rapidly increasing number of employers, he said.”
Suthan Rajagopalan, lead transaction adviser and head of longevity reinsurance at Mercer, said prior to Zurich's five longevity hedges, they had been exclusive to only the largest schemes with more than £400m of pensioner liabilities, with deal sizes averaging £2bn.
"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," he said.
He said the deal was a "significant step" towards a “DIY pensioner buy-in”, which he said had never been achieved before for a deal of £300m pensioner liabilities.
james.fernyhough@ft.com
