Zurich and Pacific Life Re deliver £1.6bn bank pension longevity swap

Global insurer Zurich and life, longevity and annuity focused reinsurance firm Pacific Life Re have delivered a £1.6 billion longevity swap arrangement for the UK’s Yorkshire and Clydesdale Bank (YCB) Pension Scheme.

The trustee of the Yorkshire and Clydesdale Bank (YCB) Pension Scheme has entered into a longevity insurance arrangement with Zurich Assurance Ltd., while a back-to-back reinsurance arrangement between the Zurich entity and Pacific Life Re International Limited using Zurich’s pass-through solution provided the ultimate capacity to underpin the roughly UK £1.6 billion of pensioner longevity risk.

As a result, Pacific Life Re assumed 100% of the longevity risk associated with the pension schemes around 9,000 members, while the trustee and Pacific Life Re take on mutual credit risk exposure to each other.

Sitting as part of the pensions investment portfolio, the longevity swap arrangement will deliver income to the scheme in the event pensioners live longer than anticipated.

Inder Dhingra, Chairman – Yorkshire and Clydesdale Bank (YCB) Pension Scheme commented, “The Trustee is delighted to have completed this longevity swap which will provide significant protection for our members against the costs associated with future increases in life expectancy. I would like to thank the Bank, PL Re, ZAL and our advisers for working collaboratively to help us reduce one of the Scheme’s largest risks and improve the security of our members’ benefits as a result.”

Justin Fox, Group Treasurer at Virgin Money UK PLC, added, “Virgin Money is pleased to have worked with the Trustee in the delivery of this transaction, which demonstrates the Group’s support for the pro-active management of pension risks.”

Sadie Scaife, of WTW, the lead adviser to the Trustee, also said, “We’ve worked with the Trustee for several years to consider the optimal approach to managing longevity risk in the Scheme and we are thrilled to have advised the Trustee on this transaction. We worked closely with the Trustee and the Bank throughout the whole process, from considering the options available for accessing the longevity reinsurance market through to negotiating terms with PL Re and ZAL. The transaction was negotiated and implemented over a period of significant volatility in the market and goes to show that longevity swaps continue to be an effective risk management option for pension schemes. There is strong appetite in the reinsurance market for longevity risk and we’re pleased to have helped the Trustee to take advantage of the current market opportunity.”

Paul Phillips of Sackers, the legal adviser to the Trustee, commented, “We were delighted to advise and support the Trustee on this important transaction, which marks a key milestone in the Scheme’s management of risk and underlines their commitment to securing member benefits. It was very much a team effort with all parties working efficiently and collaboratively with the Scheme to ensure the transaction completed smoothly and successfully for the benefit of members.”

Howie Timothy, Pacific Life Re, Business Development Director, stated, “We are incredibly proud to have worked with the Trustee of the Scheme on this transaction and for another opportunity to work alongside the WTW and Zurich teams. This transaction is the result of a huge amount of collaboration and acts as another great example of how the reinsurance sector can offer strength and capacity to assist pension schemes in meeting their de-risking objectives. As demand for longevity risk transfer increases, Pacific Life Re looks forward to working together with our clients to enable sustainable growth and offer further stability for pension scheme beneficiaries.”

Greg Wenzerul, Head of Longevity Risk Transfer at Zurich Assurance, added, “We are pleased our solution matched the Trustee’s requirements for their de-risking journey. This transaction was executed efficiently due to effective and pragmatic collaboration by the parties involved.”

This is the first longevity swap arrangement of 2023 that we’ve covered and listed in our directory of longevity swaps, longevity reinsurance and longevity risk transfer deals.

WTW previously forecast £20 billion of longevity swaps for 2023, predicting a busier year for the market, in part driven by increasing reinsurance capacity and market participants being available and attracted to longevity risk transfer.