Canada Life Re and Zurich Assurance Ltd. have entered into a £500 million longevity swap transaction with the administrator of the UBS (UK) Pension and Life Assurance Scheme.
In a press release issued on July 4, Mercer says it has acted as lead advisor to the plan sponsor in the transaction, which was worth C$774 million at the exchange rate in effect at press time.
Mercer adds that the deal brings the £1.4 billion of protection it purchased from Canada Life and Zurich in July 2020 to £1.9 billion (nearly C$3 billion). Under the terms of the agreement, UBS has purchased longevity insurance from Zurich that is 100 per cent reinsured by Canada Life Reinsurance, through The Canada Life Assurance Company (according to the release).
For members age 60+
Mercer says about half of the new longevity insurance tranche is aimed at UBS defined benefit plan members over age 60, who are not yet receiving retirement benefits. That is a first in the market, the consultant says.
The firm adds that the expanded coverage covers about two-thirds of the liabilities of UBS's UK defined benefit plan.
Common currency in Europe...
Mercer Partner Suthan Rajagopalan reports that working closely with the plan's existing “counterparties” (Canada Life and Zurich) resulted in attractive pricing and terms. Rajagopalan adds that the longevity exchange market is developing rapidly for what he calls “deferred members,” that is, plan members who are not yet receiving a pension.
According to the longevity insurance deal directory published on Artemis.bm, a media service website that covers specialized risk transfer, this is the second such deal in 2022. In February, mutual insurer Scottish Widows and reinsurer SCOR signed a £5.5 billion (C$8.5 billion) longevity insurance and reinsurance deal with Lloyds Banking Group pension plans.
The directory shows nine such transactions in 2021. Topping the list in terms of size, Reinsurance Group of America (RGA) entered into a longevity reinsurance deal with Dutch insurer Aegon, worth €7 billion, or more than C$9 billion.
...but rare in Canada
Longevity swaps are rarer in Canada, where plan risk transfer largely take place through annuity purchases. In June 2022, two insurers sold C$1.3 billion worth of annuity contracts to LifeWorks, a plan administrator for Ontario-based steel company Stelco. In April 2021, General Motors transferred $1.8 billion in pension liabilities to three insurers, also in an annuity transaction.
Within this small market, one longevity insurance transaction in Canada stands out for its size, even seven years later. In 2015, Sun Life insured the longevity risk for retirees of Bell Canada's defined benefit pension plan in a $5 billion transaction with reinsurers RGA Canada and SCOR Global Life. Mercer acted as lead advisor on this transaction.
