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The Actuary The magazine of the Institute & Faculty of Actuaries

Mercer and Zurich team up to offer longevity hedge for smaller DB schemes

Mercer has partnered with global insurer Zurich to launch what they claim is a ‘unique’ longevity hedge product for smaller and mid-sized defined benefit schemes.


The ‘streamlined longevity solution’ is aimed at DB schemes with pensioner liabilities of £50m or more.

Historically, the complexity and advisory costs associated with a longevity hedge – where an insurer assumes the longevity risk and cost of a section of a scheme’s members in return for a premium – have meant that their use in pension scheme de-risking has been restricted to larger schemes of typically £1bn plus of liabilities.

Mercer said insurers and reinsurers have found quoting on smaller schemes too expensive due to the high transaction costs involved and the complexity of each specially made deal.

The new hedge product, which is part of a wider ‘SmartDB’ service, also launched yesterday, was designed to allow schemes to combine their fiduciary management, actuarial, administration and governance services more easily, the firm said.

Alan Baker, Mercer’s head of DB risk, said: ‘Demand for DB de-risking solutions is increasing. Combining longevity hedging with our successful fiduciary management services, this is an innovative, practical step opening up a cost-effective DB de-risking approach to scheme of all sizes.

‘It’s a lower-risk, higher-return solution compared to alternatives like a pensioner buy-in. We have pre-agreed hedging terms with a panel of reinsurers fronted by Zurich, to allow clients access to the best prices because getting them competitive deals is crucial.’

Simon Foster, head of corporate life and pensions, UK and international savings at Zurich, added: ‘DB pensions have been facing significant funding challenges in recent years from people living longer and uncertain economic conditions.

‘As a result, most have closed to new members, and many have stopped future accrual, with the focus now moving to stabilise existing liabilities. Given the clear market need, and Zurich’s strategic focus on providing innovative solutions for corporate customers to better manage their risks, this is a natural extension to our UK proposition.’