On the go: The UBS (UK) Pension and Life Assurance Scheme has entered into a £1.4bn longevity hedge with Zurich Assurance, designed to protect the scheme against the risk of the 2,700 members covered living longer than expected.
The deal has been billed as an “innovative pass through” arrangement, with 100 per cent of the longevity risk reinsured by Canada Life Assurance Company.
The swap structure “was tailored to balance the trustee’s key requirements of maximising future flexibility, control and security while minimising cost, governance and operational burden”, according to a press statement from Mercer, which advised on the transaction.
Commenting on the arrangement, Suthan Rajagopalan, partner at Mercer and lead adviser to the trustee, said: “Longevity risk management has been on the trustee’s agenda for several years, and we are proud to have advised on this alongside broader strategic derisking.
“This transaction was the result of a thorough review of the scheme’s longevity risk exposures and the options — initially including bulk annuities — for reducing these, complementing the trustee’s ongoing derisking programme and investment strategy.”
Richard Hardie, chair of the trustee to the scheme, added: “This transaction is an important building block in our plan to reduce the uncertainties facing the defined benefit 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 of its liabilities (broadly its pensioners) has been removed,” he said.
“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.
“The trustee is very grateful to its advisers for seeing the market opportunity and for tailoring the complex structure to its needs.”
