Mercer, as sole commercial transaction adviser to Skanska Construction Services Trustee Limited (the “Trustee”), has announced that the 6th streamlined “named life” longevity hedge has been agreed between the Skanska Pension Fund (the “Fund”) and Zurich AssuranceLtd (“Zurich”). Zurich has reinsured 75% of the longevity hedge with SCOR and retained 25%.
The hedge, structured as a “whole of life” insurance policy, will protect against the risk of rising costs as a result of the current pensioners of the pension fund living longer than expected. The hedge is “named life” meaning it covers around 1,000 named pensioners and future dependents. The total liability for these members is around £300m.  Mercer’s advice for the Trustee on the transaction covered all aspects including feasibility, provider selection, accessing reinsurance capacity, and structuring as part of a now well established streamlined longevity hedge platform. Zurich has previously worked with Mercer and a panel of reinsurers to establish a set of streamlined terms and processes for operating an arrangement of this size efficiently. 
Harvey Francis, the Chairman of the Trustee said “The Trustee is pleased to take this opportunity to hedge longevity risk for its pensioners and their dependents. This transaction helps to improve the security of benefits for all members by removing the uncertainty of future costs to the Fund arising from existing pensioners living longer than forecast. It also provides the added comfort of an established platform through which the Trustee is able to hedge this risk. Mercer has done an excellent job in advising the Trustee and sourcing this de-risking opportunity. It has helped to deliver an attractive outcome for the Fund.”
Suthan Rajagopalan, lead transaction adviser and Head of Longevity Reinsurance at Mercer, commented, “This is the sixth streamlined longevity swap executed in about eighteen months since the first such deal was announced in December 2015. This marks the second deal, on the platform set up by Mercer, where SCOR has been awarded the reinsurance and follows on from the first deal with SCOR announced in January 2017. Before these six transactions which are approaching a total of £1.5 billion, named life longevity hedges were exclusive to only the largest schemes with over £500m of pensioner liabilities and deal sizes averaged £2bn. These deals pave the way to competitive longevity reinsurance pricing for small and medium sized schemes which are more exposed to so-called “concentration risk” where there is potential for greater variability in members’ life expectancy due to diverse pension amounts. Mercer’s co-ordination of the project culminated in immediate reinsurance by Zurich with SCOR to minimise the longevity risk transfer cost for the Trustee.”
Jim Sykes, CEO of Zurich Assurance, said:  “There has never been more uncertainty about the direction of travel for mortality rates. Despite recent reports suggesting life expectancy is not improving as quickly as had previously been envisaged, we are continuing to see strong demand from smaller-sized pension schemes who want to cost-effectively manage liabilities arising from longevity risk.  With approaching £1.5billion of transactions completed in the last 18 months, we’re expecting demand in the market to continue growing.”
Warren Singer, Principal at Mercer and Scheme Actuary for the Fund, added, “The Trustee had been looking at ways to manage risk in the Fund without impacting the long term investment journey plan. The opportunity to hedge the longevity risk in the Fund as part of a wider risk management package agreed with the Company alongside the triennial valuation was compelling.  In addition, the longevity hedge transfers this risk, without requiring the payment of an upfront premium.  This allows the pension fund to retain full investment flexibility, a key consideration for the Trustee.”
“Competition and appetite in the longevity reinsurance market is strong and there are attractive deals for pension funds to secure,” concludes Mr. Rajagopalan. “The demand for streamlined longevity hedges and also traditional insurance structures is being driven by risk management needs and there continues to be innovation to increase the range and efficiency of options to manage longevity risk. These include ‘captive’ or ‘pass-through’ structures for larger schemes – all of which aim to reduce costs and increase flexibility where scale supports this.”
Notes to Editors
About Mercer
Mercer is a global consulting leader in talent, health, retirement and investments. Mercer helps clients around the world advance the health, wealth and careers of their most vital asset – their people. Mercer’s more than 20,000 employees are based in 43 countries and the firm operates in over 140 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global professional services firm offering clients advice and solutions in the areas of risk, strategy and people. With annual revenue of $13 billion and 60,000 colleagues worldwide, Marsh & McLennan Companies is also the parent company of Marsh, a leader in insurance broking and risk management; Guy Carpenter, a leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a leader in management consulting. For more information, visit Follow Mercer on Twitter @Mercer. In the UK, Mercer Limited is authorised and regulated by the Financial Conduct Authority.

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