PFI, Zurich close £6bn longevity reinsurance transaction

The International Reinsurance business of The Prudential Insurance Company of America (PICA), a wholly owned subsidiary of Prudential Financial (PFI) has closed its first reinsurance transaction involving an unnamed UK pension scheme using an independent UK-regulated insurer, Zurich Assurance, as intermediary.

The transaction, which closed in March 2021 and transfers longevity risk associated with £6 billion ($8.4 billion) of pensioner liabilities, is PFI’s third largest UK longevity risk transfer transaction to date.

This significant transaction uses a limited recourse or pass-through structure, meaning the longevity and default risks are able to be passed through the insurer. It was the first transaction involving this type of structure entered into by PFI and comes on the heels of PFI’s International Reinsurance business re-branding at the end of 2020 to better reflect its focus on growth markets and new offerings.

“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,” said Rohit Mathur, head of transactions for PFI’s International Reinsurance business. “At PFI, we see the use of a third-party onshore UK-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.

“We continue to live in uncertain times, so it is more important than ever for us to unlock value for clients and provide them with as many options as we can.”

Willis Towers Watson (WTW), an actuarial advisor on global pension de-risking, served as lead adviser to the trustee and joint working group for the transaction. Ian Aley, head of transactions, said: “This transaction demonstrates the robustness of the longevity reinsurance market, with UK pension scheme trustees continuing their keen focus on removing risk. This is the third longevity reinsurance transaction we have partnered with PFI on in recent years, transferring in total more than £30 billion of longevity risk and enabling the trustees to progress their de-risking journeys. Each transaction used a different intermediary insurer – a Guernsey captive, a Bermudan captive and now Zurich as a UK insurer, demonstrating that structuring options exist for schemes with a wide range of governance, flexibility and cost requirements.”

Dave Lang, vice president, International Reinsurance Transactions and PFI’s transaction lead on the deal, underscored that this structure brings more flexibility for PFI clients.

“Trustees are seeing the benefits in transferring longevity during the pandemic,” Lang said. “We are so proud to be standing alongside all the people we worked with putting this structure together. We are all now experienced in providing trustees with pension de-risking options using an offshore captive or an onshore UK-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 and Clifford Chance. 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. The scheme's sponsor was advised by LCP.

Greg Wenzerul, head of longevity risk transfer, Zurich Assurance said: “There are many ongoing benefits for a UK trustee in using a regulated UK insurance company for longevity risk insurance in this capacity, including cost certainty for the life of the transaction. For many sophisticated trustees of UK 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 UK pension schemes.”

Lang added: “Trustees who are looking to first hedge longevity risk have certainty that longevity transactions can be restructured within the agreed terms to meet their long-term de-risking goals, by accommodating future de-risking such as buy-ins, buy-outs, or transactions with consolidators in ways we have not seen before.”

Mathur concluded: “All indications are that the UK pension risk transfer buy-in and buy-out market activity will remain strong this year. The market for scheme-direct longevity transactions tends to be episodic but is predicted to be robust as well. We look forward to serving the needs of our clients in new ways in this vibrant market.”

Did you get value from this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.