The international reinsurance business of the Prudential Insurance Company of America (PICA) 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 this year 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.
Willis Towers Watson (WTW) served as lead adviser to the trustee and joint working group for the transaction.
PICA is a wholly-owned subsidiary of Prudential Financial (PFI), a financial wellness leader and premier active global investment manager.
This transaction uses a limited recourse or pass-through structure, meaning the longevity and default risks are able to be passed through the insurer.
This was the first transaction involving this type of structure entered into by PFI and comes on after PFI’s international reinsurance business rebranded at the end of 2020.
Commenting on the transaction, Rohit Mathur, head of transactions for PFI’s international reinsurance business, says: “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.”
He continues: “At PFI, we see the use of a third-party onshore UK-regulated insurer as a 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,” Mathur adds.
Greg Wenzerul, head of longevity risk transfer, Zurich Assurance, notes: “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.”
He explains: “For many sophisticated trustees of UK defined benefit pension schemes, the immediate removal of longevity risk, while 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.”
In March, Willis Towers Watson acted as the sole adviser to the AXA UK Group Pension Scheme on its £3 billion longevity swap with Hannover Re to manage longevity risk in the scheme.
