National Grid has completed a £2bn intermediated longevity swap with Zurich for the National Grid Electricity Group of the Energy 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.
ESPS group trustee chair Jon Carlton said he was 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,” he added.
National Grid plc finance director Andrew Bonfield said the deal covers around two-thirds of the liabilities of the National Grid Electricity Group pension liabilities.
Zurich head of longevity risk Greg Wenzerul 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.”
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. 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. Aon acted as lead transaction advisor, providing actuarial and investment services, including negotiating the insurance terms with Zurich and broking the reinsurance.