National Grid has completed a longevity swap with Zurich to cover more than £2bn (€2.3bn) of liabilities linked to around 6,000 pensioners.

The deal was Zurich’s first “bespoke intermediated longevity swap” and its largest to date, according to Greg Wenzerul, head of longevity risk transfer at the insurer.

The transaction covered around two-thirds of the pension liabilities of the National Grid Electricity Group, said Andrew Bonfield, finance director at the UK electricity and gas transmission company.

“This demonstrates our ongoing commitment to the security of our pension arrangements, and represents a significant step in our long-term strategy to manage down the level of pensions risk for National Grid shareholders and electricity consumers,” he added.

Zurich was planning to further develop its presence in the bespoke de-risking market, Wenzerul added. The insurer has previously focused on small and mid-sized UK pension schemes, insuring the longevity risk of some £1.5bn of liabilities across six transactions in less than two years. Zurich’s first longevity swap with a UK pension scheme was in 2016.

A significant proportion of the longevity risk for the National Grid transaction was reinsured with Canada Life Insurance. Aon was lead transaction adviser.

Martin Bird, senior partner and head of risk settlement at Aon, said Zurich’s entry into the large scale longevity risk transfer market was good news for the wider market. 

According to Bird, notable features of the deal with National Grid included the creation of a streamlined framework suitable for use within the Electricity Supply Pension Scheme – of which the National Grid Electricity Group is a part. He added that the price was attractive, “reflecting a period of significant price correction in the longevity reinsurance market”.  

“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,” Bird said. 

The National Grid Electricity Group is one of 23 separate units in the Electricity Supply Pension Scheme. The sponsor is National Grid Electricity Transmission plc, part of National Grid plc.

Topics