Nationwide Pension Fund has completed a £1.7bn longevity risk transfer transaction with Zurich Assurance and Prudential Financial Inc (PFI), covering the longevity risk for around 7,000 in-pay members in the UK.

As part of the deal, which closed in May, the longevity risk of the pension scheme relating to these members will be passed through Zurich UK, to an insurance subsidiary of PFI as the reinsurer, with a limited recourse mechanism protecting Zurich UK against exposure under the transaction.

Aon was the lead adviser to the Nationwide trustee, with Insight Investment also appointed to provide ongoing longevity-related services in support of the trustee, while legal advice was provided by Sacker.

PFI, meanwhile, was advised by Willkie Farr & Gallagher LLP, while Zurich was advised by Slaughter and May.

Nationwide Pension Fund Trustee Board chair and BESTrustees trustee executive, Catherine Redmond, highlighted the transaction as 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,” she continued.

“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 Sacker for their support and looks forward to working closely with the Zurich and PFI teams.”

The transaction was completed amid strong demand for de-risking solutions, with PFI head of international reinsurance for the retirement strategies business, Rohit Mathur, suggesting that 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,” Mathur stated. “We are pleased to offer reinsurance that helps clients meet their objectives.”

Adding to this, Zurich UK head of longevity risk transfer, Greg Wenzerul, pointed to the deal as representation of 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," he continued.

“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 Risk Settlement Group partner, Tom Scott, added: “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.”

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