National Grid has completed a £2bn longevity swap with insurer Zurich, covering pension liabilities for its 6,000 members who are part of the Electricity Supply Pension Scheme.
With this transaction, National Grid aims to protect itself against the risk of rising costs due dependent members living longer than expected. Zurich has subsequently re-insured a proportion of this longevity risk with Canada Life Reinsurance
This is the seventh longevity swap the insurer has entered into in less than two years, taking the total liabilities hedged by pension schemes with Zurich to around £3.5bn. In the past, Zurich has focused on smaller and mid-sized UK pension schemes.
Jon Carlton, chair of the group trustee for National Grid Electricity Group Pension, comments. “The group trustee is 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.
“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 adds.
The National Grid pension scheme is one of 23 groups which are part of the Electricity Supply Pension Scheme, which, as of 2016, had more than £31bn in assets.
Martin Bird, senior partner and head of risk settlement at Aon, which acted as lead adviser for the deal, comments: “The transaction also demonstrates the opportunities currently available to pension schemes to hedge longevity risk cost effectively via a structure under which the scheme retains control of and flexibility over its investment strategy.”
Zurich’s entry into the large scale longevity risk transfer arena is good news for the wider market,” he predicts.
The market for longevity swap deals has seen an uptake over the last couple of years, with insurance providers becoming increasingly willing to consider deals with smaller schemes.
