The Yorkshire and Clydesdale Bank (YCB) Pension Scheme has agreed a £1.6bn longevity swap transaction with Pacific Life Re International Limited (PL Re) and Zurich Assurance Ltd (ZAL) to manage the scheme’s longevity risk.

The arrangement aims to enhance member security by providing long-term protection to the scheme against costs resulting from pensioners or their dependants living longer than currently expected.

The policy is structured as an insurance arrangement between the trustee and ZAL, with a back-to-back reinsurance arrangement between ZAL and PL Re using ZAL’s pass-through solution.

Using this approach, PL Re assumes 100 per cent of the longevity risk associated with around 9,000 members of the scheme, while the trustees and PL Re take on mutual credit risk exposure to each other.

The trustee received advice on the transaction from WTW, Sackers and Walkers, while PL Re was advised by CMS and ZAL was advised by Slaughter & May.

YCB Pension Scheme chairman, Inder Dhingra, said that the trustee was “delighted” to have completed this longevity swap, stating that it will provide “significant protection” for members against the costs associated with future increases in life expectancy.

“I would like to thank the bank, PL Re, ZAL and our advisers for working collaboratively to help us reduce one of the scheme’s largest risks and improve the security of our members’ benefits as a result,” Dhingra added.

Adding to this WTW Sadie Scaife, said: “We’ve worked with the trustee for several years to consider the optimal approach to managing longevity risk in the scheme and we are thrilled to have advised the trustee on this transaction.

“We worked closely with the trustee and the bank throughout the whole process, from considering the options available for accessing the longevity reinsurance market through to negotiating terms with PL Re and ZAL.

“The transaction was negotiated and implemented over a period of significant volatility in the market and goes to show that longevity swaps continue to be an effective risk management option for pension schemes.

"There is strong appetite in the reinsurance market for longevity risk and we’re pleased to have helped the trustee to take advantage of the current market opportunity.”

PL Re business development director, Howie Timothy, also highlighted the transaction as "another great example of how the reinsurance sector can offer strength and capacity to assist pension schemes in meeting their de-risking objectives".

“We are incredibly proud to have worked with the trustee of the scheme on this transaction and for another opportunity to work alongside the WTW and Zurich teams," he continued.

"As demand for longevity risk transfer increases, Pacific Life Re looks forward to working together with our clients to enable sustainable growth and offer further stability for pension scheme beneficiaries.”

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