Prudential, Zurich close significant £6 billion longevity reinsurance transaction

Σάββατο, 01 Μαΐου 2021 18:03
Prudential, Zurich close significant £6 billion longevity reinsurance transaction

Prudential Retirement’s International Reinsurance business has closed its first reinsurance transaction involving an unnamed U.K. pension scheme using an independent U.K.-regulated insurer, Zurich Assurance Ltd., as intermediary. The transaction, which closed in March of 2021 and transfers longevity risk associated with £6 billion ($8.4 billion) of pensioner liabilities, is Prudential’s third largest U.K. longevity risk transfer transaction to date. Prudential Retirement is a business unit of Prudential Financial, Inc. (NYSE: PRU).

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 Prudential Retirement and comes on the heels of Prudential’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,” Rohit Mathur, head of transactions for Prudential’s International Reinsurance business, said. “At Prudential, 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.”

Mathur continued: “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), a leading 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 U.K. pension scheme trustees continuing their keen focus on removing risk. This is the third longevity reinsurance transaction we have partnered with Prudential 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 U.K. 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 Prudential’s transaction lead on the deal, underscored this structure brings more flexibility for Prudential 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 U.K.-regulated intermediary insurer to host the longevity reinsurance transaction, which creates the needed flexibility for clients looking to de-risk.”

Prudential was advised by Willkie Farr & Gallagher LLP and Clifford Chance LLP. 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.

Greg Wenzerul, head of longevity risk transfer, Zurich Assurance Ltd., said: “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 Prudential to bring further opportunities for U.K. 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.”

“All indications are that the U.K. pension risk transfer buy-in and buy-out market activity will remain strong this year,” Mathur concluded. “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.”

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