Zurich & Prudential Financial in £1.7bn UK pension longevity swap & reinsurance

Zurich and Prudential Financial, Inc. have combined to deliver a £1.7 billion pension longevity swap and reinsurance risk transfer arrangement for the UK’s Nationwide Pension Fund.

The Nationwide Pension Fund Trustee Limited has entered into a longevity swap agreement with Zurich Assurance Ltd (Zurich UK), and Prudential Financial, Inc. (PFI) of the United States has acted as the reinsurance capital provider.

The longevity risk of approximately £1.7 billion ($2 billion) of Nationwide’s pension scheme liabilities, covering approximately 7,000 in-pay members in the UK, are involved.

The transaction sees the longevity risk of the pension passing through Zurich UK, to an insurance subsidiary of PFI as the reinsurance company, while there is a limited recourse mechanism in place to protect Zurich UK against exposure under the transaction.

The firms involved say that the market is seeing increased demand for longevity risk transfer transactions at this time.

Catherine Redmond, Chair of the Fund’s Trustee Board and Trustee Executive for BESTrustees Limited commented, “This transaction is an important step in ensuring that members’ benefits are secured against unexpected increases in life expectancy. This is great news for the Fund and its members, transferring risk and helping to further protect our members’ pensions. We as a Trustee Board are delighted to have taken this additional step on our long-term de-risking journey. The Trustee is grateful to Aon and Sackers for their support and looks forward to working closely with the Zurich and PFI teams.”

Rohit Mathur, head of international reinsurance for the Retirement Strategies business at PFI, added, “the recent rise in interest rates have resulted in improvements in pension plan funded status, accelerating de- risking plans for many sponsors. Pension Trustees can consider a few different options to manage risk including a pension buy-out or a longevity risk transfer transaction. We are pleased to offer reinsurance that helps clients meet their objectives.”

Greg Wenzerul, head of longevity risk transfer for Zurich UK, said, “This solution represents a simple approach for pension fund trustees to manage their exposure to longevity risk. In a rapidly changing pensions de-risking market, with increased pension scheme focus on leverage, longevity swaps continue to represent a sophisticated and valuable de-risking approach. We are pleased to count the Trustee of the Nationwide Pension Fund as a customer, and to build on our existing transactions involving PFI.”

Aon acted as lead adviser to the Nationwide trustee, with legal counsel provided by Sacker & Partners LLP. PFI was advised by Willkie Farr & Gallagher LLP, and Zurich was advised by Slaughter and May. Insight Investment provides ongoing longevity-related services in support of the Trustee, including that of collateral manager.

Tom Scott, Partner in the Aon Risk Settlement Group, stated, “This transaction provides cost effective and practical risk mitigation to the Fund. It further improves members’ benefit security and reduces risks to the Fund and Nationwide Building Society as sponsor. It is a further example of the ability and capacity of the insurance and reinsurance markets to work in partnership with pension funds of different shapes and sizes to manage risks.”

This is only the second 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 had 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.

View details of many longevity swaps and longevity reinsurance deals in our longevity risk transfer deal directory.