UBS expands pension longevity swap to £1.9bn with Zurich & Canada Life Re

The UBS (UK) Pension and Life Assurance Scheme has added another £500 million to an in-force longevity swap arrangement, expanding it to provide £1.9 billion of protection.

The UBS UK pension scheme entered in a £1.4 billion longevity swap arrangement two years ago, with global player Zurich acting as the insurer for the transaction and Canada Life Re providing reinsurance capital.

Now, it’s been announced that the pension has expanded the longevity swap coverage to provide protection across more of its pension liabilities.

Once again, insurer Zurich and reinsurance firm Canada Life Re have provided the conduit to capital and the capacity to support the expansion of this longevity swap arrangement.

Mercer acted as the lead commercial and investment adviser to the Trustee of the UBS (UK) Pension and Life Assurance Scheme and the extended longevity swap now covers around two-thirds of its defined benefit (DB) pension liabilities.

Roughly half of the new tranche of the longevity swap relates to deferred members, Mercer explained adding that the swap was adapted to cover the Scheme’s DB deferred members over age 60, which is a first for the longevity risk transfer market, as well as the unhedged DB current pensioners.

It protects the pension Scheme against the risk of itss covered members or their covered dependents living longer than expected.

100% of the longevity risk was again reinsured by Canada Life Reinsurance in this longevity swap extension.

Suthan Rajagopalan, Partner at Mercer and lead adviser to the Trustee, commented on the deal, “This transaction follows the original pensioner-only £1.4bn longevity swap in 2020 and we are proud to have advised on this innovative £0.5bn extension, around half of which relates to deferred members. This transaction was the result of ongoing review of the Scheme’s broader strategic de-risking and long-term journey plan; through close collaboration with the Scheme’s existing counterparties we were able to secure attractive pricing and terms in what is a quickly-developing longevity swap market for deferred members.”

Richard Hardie, Chair of the Trustee to the UBS (UK) Pension and Life Assurance Scheme, added, “This transaction is a significant milestone 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 now approximately two thirds of the Scheme’s DB liabilities has been removed. We are delighted to have extended our agreement on terms satisfactory to all parties with the continuing excellent support from the sponsor, UBS, and the strong relationship with our existing counterparties Zurich and Canada Life. The Trustee is very grateful to its advisers for seeing the market opportunity.”

Gareth Dobson, General Manager of The Canada Life Assurance Company’s Barbados Branch further explained, “Canada Life Reinsurance is proud to have supported the UBS Pension Trustee and Zurich in increasing their longevity risk coverage in relation to this Scheme, in partnership with the Trustee’s advisors, Mercer. This transaction further demonstrates the benefits and flexibility of longevity risk transfer in providing long term protection to the UBS Pension Scheme members, including deferred members.”

Greg Wenzerul, Zurich’s Head of Longevity Risk Transfer, added,; “We are pleased that our original transaction could be extended efficiently for all parties, and that our involvement has further supported the Trustee on their long term de-risking journey.”

Caroline Stewart, UK CFO UBS AG, also said, “UBS AG as sponsor to the Scheme was consulted throughout the process and is fully supportive of the Trustee’s strategic risk management objectives and investment decision to materially further reduce longevity risk via this, the second transaction for the Scheme.”