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Pacific Life Re in £3.7bn longevity swap for Prudential pension scheme


Pacific Life Re, the global life, longevity and morbidity reinsurance firm, has completed a UK £3.7 billion longevity swap transaction for the Prudential Staff Pension Scheme, in an arrangement that was entered into using a Guernsey captive structure.

pacific-life-re-logoPacific Life Re has been growing its activity in the longevity swap, risk transfer and reinsurance market in recent years, with the firm having been the longevity reinsurer in a number of transactions intermediated by insurers and we have all of these listed in our longevity risk transfer deal directory.

But this deal saw the company working in a non-intermediated or direct manner, as a Guernsey captive vehicle will have played a pass-through role to enable the pension scheme to gain more direct access to the reinsurance capacity provided to underpin the longevity swap deal, provided by Pacific Life Re.

This longevity swap provides the Prudential Staff Pension Scheme, which is M&G plc’s largest UK pension, with cover for £3.7 billion of pension liabilities relating to over 20,000 pensioners.

The longevity swap transaction was structured using a Guernsey-based captive, which enables the cover to be passed-through to the pension beneficiary without the need for an intermediating private insurer.

These captive, or cell structure, related longevity swaps, effectively utilise the offshore structure as a way to allow the pension to enter into the insurance swap with the captive, or cell, while the reinsurance capital can be used to back the risk more directly.

By entering into the insurance agreement with its own or a rented insurance vehicle (like a captive or cell structure), which then enters into a reinsurance agreement with the reinsurer, the pension fund can reduce its costs in entering into the longevity hedge or swap.

Of course, we see similar structures being put together to make provision of reinsurance capital more efficient and direct in the insurance-linked securities (ILS) market, where captives can be used to intermediate catastrophe bonds and other structures, seen most recently in the new Google catastrophe bond deal.

Pacific Life Re has participated in these more direct transactions in the past.

Willis Towers Watson advised the Trustee of the pension scheme, with external legal counsel for Pacific Life Re provided by CMS.

As with all longevity risk transfer deals, the longevity swap will protect the pension against the financial risk of an unexpected increase in life expectancy, ultimately making the scheme more secure for the beneficiaries.

Elaine Murphy, Longevity Director, Pacific Life Re , commented on the transaction, “We are delighted to have worked with the Trustee of the Prudential Staff Pension Scheme and Willis Towers Watson on this transaction. It’s a huge achievement to see a deal of this size being completed despite the challenges of the COVID-19 pandemic. This transaction demonstrates the continuing strength and capacity of the reinsurance sector to support pension scheme de-risking in a time of increased uncertainty with regards to future life expectancy.”

Ian Aley, Head of Transactions, Willis Towers Watson, added, “This transaction follows a period of working with the Trustee to identify the optimal solution. Within a vibrant market and following a very competitive process including many bidding reinsurers, Pacific Life Re was selected. We were pleased to be able to build on the Trustees in- depth understanding of this type of transaction to help them achieve attractive terms that reduce risk and enhance member security. The transaction demonstrates both the appetite of defined benefit schemes to de-risk their liabilities and how transactions can be successfully structured within the current environment.”

Read about many longevity hedging transactions in our longevity swap, reinsurance and risk transfer deal directory.

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