Deal structure demonstrates new options, flexibility for clients
Prudential Retirement’s International Reinsurance business has closed its first reinsurance transaction involving an unnamed U.K. pension scheme using an independent U.K.-regulated insurer, Zurich Assurance Ltd., as intermediary. The transaction, which closed in March of 2021 and transfers longevity risk associated with £6 billion ($8.4 billion) of pensioner liabilities, is Prudential’s third largest U.K. longevity risk transfer transaction to date. Prudential Retirement is a business unit of Prudential Financial, Inc. (NYSE: PRU).
This significant transaction uses a limited recourse or pass-through structure, meaning the longevity and default risks are able to be passed through the insurer. It was the first transaction involving this type of structure entered into by Prudential Retirement and comes on the heels of Prudential’s International Reinsurance business re-branding at the end of 2020 to better reflect its focus on growth markets and new offerings.
“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,” Rohit Mathur, head of transactions for Prudential’s International Reinsurance business, said. “At Prudential, we see the use of a third-party onshore U.K.-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.”
Mathur continued: “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.”
Willis Towers Watson (WTW), a leading actuarial advisor on global pension de-risking, served as lead adviser to the trustee and joint working group for the transaction. Ian Aley, head of transactions, said: “This transaction demonstrates the robustness of the longevity reinsurance market, with U.K. pension scheme trustees continuing their keen focus on removing risk. This is the third longevity reinsurance transaction we have partnered with Prudential on in recent years, transferring in total more than £30 billion of longevity risk and enabling the trustees to progress their de-risking journeys. Each transaction used a different intermediary insurer – a Guernsey captive, a Bermudan captive and now Zurich as a U.K. insurer, demonstrating that structuring options exist for schemes with a wide range of governance, flexibility and cost requirements.”
Dave Lang, vice president, International Reinsurance Transactions and Prudential’s transaction lead on the deal, underscored this structure brings more flexibility for Prudential clients.
“Trustees are seeing the benefits in transferring longevity during the pandemic,” Lang said. “We are so proud to be standing alongside all the people we worked with putting this structure together. We are all now experienced in providing trustees with pension de-risking options using an offshore captive or an onshore U.K.-regulated intermediary insurer to host the longevity reinsurance transaction, which creates the needed flexibility for clients looking to de-risk.”
Prudential was advised by Willkie Farr & Gallagher LLP and Clifford Chance LLP. The trustee and joint working group were advised by Willis Towers Watson, CMS and Eversheds Sutherland. Zurich was advised by Pinsent Masons and Kramer Levin Naftalis & Frankel LLP. The scheme’s sponsor was advised by LCP.
Greg Wenzerul, head of longevity risk transfer, Zurich Assurance Ltd., said: “There are many ongoing benefits for a U.K. Trustee in using a regulated U.K. insurance company for longevity risk insurance in this capacity, including cost certainty for the life of the transaction. For many sophisticated trustees of U.K. defined benefit pension schemes, the immediate removal of longevity risk, whilst 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 Prudential to bring further opportunities for U.K. pension schemes.”
Lang added: “Trustees who are looking to first hedge longevity risk have certainty that longevity transactions can be restructured within the agreed terms to meet their long-term de-risking goals, by accommodating future de-risking such as buy-ins, buy-outs, or transactions with consolidators in ways we have not seen before.”
“All indications are that the U.K. pension risk transfer buy-in and buy-out market activity will remain strong this year,” Mathur concluded. “The market for scheme-direct longevity transactions tends to be episodic but is predicted to be robust as well. We look forward to serving the needs of our clients in new ways in this vibrant market.”
About Prudential Retirement
Prudential Retirement delivers retirement plan solutions for public, private, and nonprofit organizations. Services include defined contribution, defined benefit and non‐qualified deferred compensation record keeping, administrative services, investment management, comprehensive employee education and communications, and trustee services, as well as a variety of products and strategies, including institutional investment and income products, pension risk transfer solutions and structured settlement services. With over 85 years of retirement experience, Prudential Retirement helps meet the needs of 4.8 million participants and annuitants. Prudential Retirement has $558.6 billion in retirement account values as of December 31, 2020.
Retirement products and services are provided by The Prudential Insurance Company of America (PICA), Newark, N.J., or its affiliates.
Reinsurance contracts are issued by The Prudential Insurance Company of America (PICA), Newark, N.J., 07102. PICA is not a U.K. authorized insurer and does not conduct business in the United Kingdom or provide direct insurance to any individual or entity therein. Prudential Financial, Inc. of the United States is not afﬁliated in any manner with Prudential plc, incorporated in the United Kingdom or with Prudential Assurance Company, a subsidiary of M&G plc, incorporated in the United Kingdom.
About Prudential Financial
Prudential Financial, Inc. (NYSE: PRU), a financial wellness leader and premier active global investment manager with more than $1.5 trillion in assets under management as of Dec. 31, 2020, has operations in the United States, Asia, Europe, and Latin America. Prudential’s diverse and talented employees help to make lives better by creating financial opportunity for more people. Prudential’s iconic Rock symbol has stood for strength, stability, expertise and innovation for more than a century. For more information, please visit news.prudential.com.
About Willis Towers Watson
Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 45,000 employees serving more than 140 countries and markets. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas – the dynamic formula that drives business performance. Together, we unlock potential. Learn more at willistowerswatson.com.
Zurich UK provides a suite of general insurance and life insurance products to retail and corporate customers. We supply personal, commercial and local authority insurance through a number of distribution channels, and offer a range of protection, retirement and savings policies available online and through financial intermediaries for the retail market and via employee benefit consultants for the corporate market. Based in a number of locations across the UK - with large sites in Birmingham, Farnborough, Glasgow, London, Swindon and Whiteley - Zurich employs approximately 4,500 people in the UK. https://www.zurich.co.uk/
Zurich Insurance Group (Zurich) is a leading multi-line insurer that serves its customers in global and local markets. With about 55,000 employees, it provides a wide range of property and casualty, and life insurance products and services in more than 215 countries and territories. Zurich’s customers include individuals, small businesses, and mid-sized and large companies, as well as multinational corporations. The Group is headquartered in Zurich, Switzerland, where it was founded in 1872. The holding company, Zurich Insurance Group Ltd (ZURN), is listed on the SIX Swiss Exchange and has a level I American Depositary Receipt (ZURVY) program, which is traded over-the-counter on OTCQX. Further information about Zurich is available at www.zurich.com.
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Josh Stoffregen-Foye (Prudential)
Jamie Kilduff (Willis Towers Watson)
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Chris Johnson (Zurich)
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