US-based Prudential Financial, Inc. (PFI) has completed its first reinsurance transaction with an undisclosed UK pension scheme, with Zurich Assurance Ltd acting as intermediary.
According to a statement by PFI, the transaction was conducted through the international reinsurance business of its Prudential Insurance Company of America subsidiary. This involved the transfer of longevity risk associated with £6 billion (US$8.4 billion) of pensioner liabilities. It is PFI’s third-largest UK longevity risk transfer transaction to date.
The transaction, it added, uses a limited recourse or pass-through structure. In this type of deal, the longevity and default risks are able to be passed through the insurer. It is PFI’s first-such transaction of its kind, and comes after its international reinsurance business was restructured at the end of 2020.
“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,” said Rohit Mathur, head of transactions for PFI’s international reinsurance business. “At PFI, we see the use of a third-party onshore UK-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.”
Willis Towers Watson and CMS acted as lead advisers for the transaction’s joint working group. According to Ian Aley, WTW’s head of transactions, this is the third time the global brokerage and consultancy has worked with PFI on a longevity reinsurance transaction. Each transaction used a different intermediary insurer, with the first two being captives based in Guernsey and Bermuda, respectively.
“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,” said Greg Wenzerul, head of longevity risk transfer, Zurich Assurance Ltd. “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.”
