Prudential Financial subsidiary, The Prudential Insurance Company of America (PICA), and Zurich Assurance Ltd. have closed a £6 billion longevity swap with an unnamed UK pension scheme.
The longevity risk was reinsured to the International Reinsurance business of PICA, with Zurich acting as intermediary on a ‘pass-through’ basis.
The transaction, which closed in March of 2021, is the first pass-through style deal entered into by PFI, and represents the company’s third largest UK longevity risk transfer transaction to date.
“Last year, we expanded our offerings and launched funded reinsurance, where we reinsure both longevity and asset risk for our clients. This transaction further demonstrates our continued focus on innovating to meet the needs of our clients,” explained Rohit Mathur, Head of Transactions for PFI’s International Reinsurance business.
“At PFI, we see the use of a third-party onshore U.K.- regulated insurer as limited recourse intermediary as the logical next step in the de-risking solutions we can offer clients in our evolving business model.”
Greg Wenzerul, Head of Longevity Risk Transfer at Zurich Assurance, also commented: “There are many ongoing benefits for a U.K. Trustee in using a regulated U.K. insurance company for longevity risk insurance in this capacity, including cost certainty for the life of the transaction.”
“For many sophisticated trustees of U.K. defined benefit pension schemes, the immediate removal of longevity risk, whilst using scheme assets in the most efficient and risk-aware manner, will continue to represent the optimal route to eventually secure all their liabilities. We expect our strong relationship and infrastructure with PFI to bring further opportunities for U.K. pension schemes.”
Re/insurance broker Willis Towers Watson (WTW) served as lead adviser to the trustee and joint working group for the transaction.
Ian Aley, Head of Transactions at Willis Towers Watson, remarked: “We helped the Joint Working Group to understand the full breadth of available options for managing longevity risk, which was a material outstanding risk in the Scheme. We concluded that a longevity swap would provide good value for money relative to the risk transferred, as well as enabling the Scheme to continue to run an optimised investment strategy.”
“It has been a pleasure to partner with the CMS team on this transaction which resulted in an excellent outcome for the Scheme. I’d also like to thank the PFI and Zurich teams for their positive and collaborative approach throughout the project, which was completed in exceptional circumstances.”
“Trustees are seeing the benefits in transferring longevity during the pandemic,” added Dave Lang, Vice President, International Reinsurance Transactions and PFI’s transaction lead on the deal.
“We are so proud to be standing alongside all the people we worked with putting this structure together,” Lang went on. “We are all now experienced in providing trustees with pension de-risking options using an offshore captive or an onshore U.K.-regulated intermediary insurer to host the longevity reinsurance transaction, which creates the needed flexibility for clients looking to de-risk.”
PFI was advised by Willkie Farr & Gallagher LLP and Clifford Chance LLP on this deal. The trustee and joint working group were advised by Willis Towers Watson, CMS and Eversheds Sutherland. Zurich was advised by Pinsent Masons and Kramer Levin Naftalis & Frankel LLP. The scheme’s sponsor was advised by LCP.
James Parker, Pensions Partner at CMS, further stated: “Delivering a transaction of this size and complexity in the midst of a pandemic is no mean feat and it would not have been possible without a high degree of collaboration between the trustees, sponsor, Zurich, PFI and their various advisers. This transaction underlines the remarkable resilience of the longevity risk transfer market.”