Mercer advises UBS (UK) Pension and Life Assurance Scheme on £0.5bn longevity hedge

5 July 2022

Mercer has acted as the lead commercial and investment adviser to the Trustee of the UBS (UK) Pension and Life Assurance Scheme (the “Scheme”) as the Scheme extends its longevity hedge by £0.5bn. This transaction adds to the £1.4bn longevity swap transacted in July 2020 and the extended swap now covers roughly two-thirds of its defined benefit (DB) liabilities. Around half of the new tranche of the longevity swap relates to deferred members.

It was arranged with Zurich Assurance Ltd (“Zurich”) as the insurer with The Canada Life Assurance Company (“Canada Life Reinsurance”) acting as the reinsurer. Allen & Overy LLP acted as legal advisers to the Trustee.

The longevity swap was innovatively and efficiently adapted to cover the Scheme’s DB deferred members over age 60 – a market first – as well as the unhedged DB current pensioners. The swap will protect the Scheme against the risk of the covered members or their covered dependants living longer than expected.

The extension again sees 100% of the longevity risk reinsured by Canada Life Reinsurance.

Suthan Rajagopalan, Partner at Mercer and lead adviser to the Trustee, commented: “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, commented, “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 noted; “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, said; “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, commented; “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.”

The Trustee was also advised by FTI Consulting, Gowling WLG (UK) LLP. Canada Life Reinsurance and Zurich took legal advice from Slaughter & May and by Pinsent Masons LLP respectively.

Source: Mercer