Prudential Financial reinsures £7bn Barclays UK pension longevity swap

Prudential Financial, Inc. of the United States has provided reinsurance to back a £7 billion longevity swap and risk transfer arrangement for the Barclays Bank UK Retirement Fund, a pension scheme and fund managing assets on behalf of UK employees of the bank.

This £7 billion longevity swap and reinsurance deal follows a £5 billion arrangement the same pension scheme entered into with Reinsurance Group of America (RGA) in late 2020.

Under the terms of this longevity risk transfer arrangement, if pensions are paid out for longer than expected (so pensioners live longer than anticipated, then the transaction would provide income to the Barclays UK pension from the reinsurance provided by Prudential Financial, Inc. via the insurer.

As a result, we assume there is an intermediating insurer sitting between the pension and Prudential Financial Inc. (PFI), that has entered into a longevity swap with the Barclays pension and then reinsured the full liabilities to PFI.

Now, adding this new longevity swap and reinsurance to the late 2020 deal, the Barclays Bank UK Retirement Fund has more than three-quarters of its current pensioners’ longevity risk hedged.

Peter Goshawk, the Chair of the Trustee, explained, “This second longevity transaction is an important part of our continued de-risking of the UKRF and improves benefit security for all members. The success of the transaction is down to the collaboration and support of Barclays and the hard work of Barclays’ pension team, PFI and our advisers, all of whom I would like to thank.”

Rohit Mathur, head of international reinsurance for the Retirement Strategies business at PFI added, “we are pleased to partner with the Trustee of the Barclays Bank UK Retirement Fund on a longevity transaction that helps to meet the client’s risk management objectives. It demonstrates PFI’s continued leadership and commitment to the global pension and longevity risk transfer market.”

Aon was the lead adviser to the Barclays Bank UK Retirement Fund on this transaction.

Tom Scott, partner in Aon’s Risk Settlement team, said, “This transaction is a further substantive step in the Trustee’s journey to improve the resilience and security of UKRF members’ benefits. Working closely with Kate McInerney’s legal team at Allen & Overy, our multi-disciplinary team was able to conclude a successful negotiation for the UKRF. We leveraged the heightened capacity and appetite of the global reinsurance market during the broking process, as well as the UKRF’s existing operational infrastructure and longevity transaction experience.”

Insight Investment is the collateral manager for this longevity transaction and previously also acted as the collateral manager for the late 2020 £5 billion longevity risk transaction for the same Barclays pension.

Serkan Bektas, Head of the Client Solutions Group at Insight Investment, commented, “Over the last 10 to 15 years, UK pension fund trustees have acted to substantially hedge interest rate risk and inflation risk and are now increasingly focused on longevity risk. The robust and efficient management of collateral and associated liquidity has received particular attention in recent months. Our approach is to work closely with clients who are seeking to maximise certainty of outcome and achieve greater overall investment efficiency in their risk management frameworks.”

Including this latest transaction, we have UK £15.7 billion of longevity swaps listed in our deal directory for 2022.

Which is far from the biggest year for the market, but still represents some significant transactions and use of reinsurance capital to underpin pensioner longevity risks so far this year.