The International Reinsurance business of The Prudential Insurance Company of America (PICA), a wholly owned subsidiary of Prudential Financial Inc (PFI), has closed its first reinsurance transaction with an unnamed UK pension scheme, with Zurich Assurance acting as an intermediary.

The transaction closed in March 2021, transferring the longevity risk associated with £6bn, equal to $8.4bn, of pensioner liabilities, representing PFI's third largest UK longevity risk transfer transaction to date.

The deal has been highlighted as “significant” thanks to its use of a limited recourse or pass-through structure, which was a first for PFI, and allows the longevity and default risks to pass through the insurer.

PFI was advised by Willkie Farr & Gallagher LLP and Clifford Chance LLP, whilst the trustee and joint working group were advised by Willis Towers Watson, CMS and Eversheds Sutherland.

Zurich meanwhile, was advised by Pinsent Masons and Kramer Levin Naftalis & Frankel LLP, and the scheme’s sponsor was advised by LCP.

Commenting on the transaction, Willis Towers Watson head of transactions, Ian Aley, said: “We helped the Joint Working Group to understand the full breadth of available options for managing longevity risk, which was a material outstanding risk in the scheme.

"We concluded that a longevity swap would provide good value for money relative to the risk transferred, as well as enabling the scheme to continue to run an optimised investment strategy.”

PFI’s International Reinsurance business head of transactions, Rohit Mathur, meanwhile, highlighted the transaction as further demonstrating the groups continued focus on innovating to meet client needs.

He continued: “Last year, we expanded our offerings and launched funded reinsurance, where we reinsure both longevity and asset risk for our clients.

“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.

“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.”

Adding to this, CMS pensions partner, James Parker, described the transaction as having underlined the "remarkable resilience of the longevity risk transfer market".

He continued: “Delivering a transaction of this size and complexity in the midst of a pandemic is no mean feat and it would not have been possible without a high degree of collaboration between the trustees, sponsor, Zurich, PFI and their various advisers."

Also commenting on the deal, LCP partner, Myles Pink, explained that advice on value-for-money and structuring of the longevity swap was provided in an effort to ensure that the pricing and terms agreed were consistent with the wider de-risking journey plan agreed between the sponsor and trustees.

"Particularly important for this transaction was to provide clear advice to the sponsor on a longevity hedging transaction being priced and executed during the global pandemic," he continued.

“Another key sponsor focus was on ensuring agreement of pragmatic terms and efficient processes for the management of collateral and operation of the longevity swap.

"Collaborative working with other advisers and stakeholders was key to successfully providing such wide-ranging advice.”

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