Zurich and Prudential Financial, Inc. jointly provided a £1.7 billion pension longevity swap and reinsurance risk transfer arrangement for the UK’s National Pension Fund.
Nationwide Pension Fund Trustee Limited signed a longevity swap agreement with Zurich Assurance Ltd (Zurich, UK), with Prudential Financial, Inc. (PFI) of the US acting as the reinsurance fund provider.
Longevity risk involving around £1.7 billion ($2 billion) of Nationwide pension scheme liabilities, covering around 7,000 contributory members in the UK.
The transaction passes the pension’s longevity risk through Zurich UK to PFI’s insurance subsidiary acting as a reinsurer, with limited recourse mechanisms in place to protect Zurich UK from its exposure under the transaction.
Related companies said that the current market demand for longevity risk transfer transactions is increasing.
Catherine Redmond, Chairman of the Board of Trustees of the Fund and Executive Trustee of BESTrustees Limited, commented: “This transaction is an important step in securing members’ interests from unexpected increases in life expectancy. This is great news for the Fund and its members, which can transfer risk and help further protect our members’ pensions. As a board of trustees, we are pleased to have taken this additional step in our long-term de-risking journey. The trustees thank Aon and Sackers for their support and look forward to working with Zurich Working closely with the PFI team.”
Rohit Mathur, Head of International Reinsurance, PFI’s Retirement Strategies business, added: “The recent rise in interest rates has led to an improved funding position for pension schemes, accelerating the de-risking plans of many sponsors. Pension fiduciaries may consider several different options to Manage risk, including pension buyouts or longevity risk transfer transactions. We are pleased to provide reinsurance to help clients achieve their goals.”
Greg Wenzerul, Head of UK Longevity Risk Transfer at Zurich, said: “This solution represents a simple way for pension fund fiduciaries to manage longevity risk exposure. Leveraged, longevity swaps continue to represent a complex and valuable approach to de-risking. We are pleased to count the trustees of the National Pension Fund as a client and to build on our existing transactions involving PFIs.”
Aon acted as lead counsel to the National Trustees and legal counsel was provided by Sacker & Partners LLP. PFI was advised by Willkie Farr & Gallagher LLP and Zurich by Slaughter and May. Insight Investment provides ongoing longevity-related services to support trustees, including the services of collateral managers.
Tom Scott, partner at Aon Risk Settlement Group, said: “This transaction provides the fund with a cost-effective and practical risk mitigation. This is yet another example of the capacity and ability of the insurance and reinsurance markets to work with pension funds of all shapes and sizes to manage risk.”
This is only the second longevity swap arrangement for 2023 that we cover and list in our catalog of longevity swaps, longevity reinsurance and longevity risk transfer transactions.
WTW had previously forecast £20bn of longevity swaps in 2023, anticipating a busier year for the market, partly due to increased reinsurance capacity and market players being attracted to longevity risk transfers.
View details of many longevity swaps and longevity reinsurance transactions in our catalog of longevity risk transfer transactions.