UBS enters £1.4bn longevity swap with Zurich Assurance

The UBS UK Pension and Life Assurance Scheme has entered a £1.4bn longevity hedge deal, covering “the majority” of its defined benefit (DB) pensioners.

Structured as a 'pass through' insurance contract with Zurich Assurance Ltd as the insurer, the deal also saw 100 per cent of the longevity risk reinsured by Canada Life Reinsurance.

The swap will protect the scheme against the risk of the covered members, or their dependants, living longer than expected, and covers roughly £1.4bn of the scheme's DB liabilities.

The structure was specifically tailored to balance trustee requirements, of maximising future flexibility, control and security, whilst also minimising cost, as well as governance and operational burdens.

The scheme trustees received legal transactional counsel from Allen & Overy, while Canada Life Reinsurance and Zurich received legal advice from Herbert Smith Freehills and Pinsent Masons, respectively.

Mercer acted as the primary commercial and investment adviser to the trustees of the scheme, who were also advised by FTI Consulting, Gowling WLG LLP, Osler, Hoskin & Harcout, and Chancery Chambers LLP in Barbados.

Mercer stated that it had advised on the deal alongside "broader strategic de-risking", explaining that there had been a “thorough review” of the scheme’s longevity risk exposures and the options for reducing these, with bulk annuities deals also initially considered.

Commenting on the transaction, chair of the trustee to the scheme, Richard Hardie, added: “This transaction is an important building-block in our plan to reduce the uncertainties facing the DB section of our scheme as it approaches maturity.

“It adds considerably to the security of all DB members’ pensions; the longevity risk attaching to approximately half its liabilities (broadly its pensioners) has been removed. Until now all the longevity risk in the scheme has been unhedged.

“We are delighted to have completed this agreement on terms satisfactory to all parties with continuing excellent support from the sponsor, UBS."

UBS AG chief financial officer, Caroline Stewart, emphasised that, as sponsor to the scheme, UBS had remained “fully supportive" of the "strategic risk management objectives and investment decision to material reduced longevity risk via this type of transaction”.

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