28 April 2021New Captive Models

Willis Towers Watson, CMS lead longevity swap demonstrating “remarkable resilience” of market

A large UK pension scheme has completed a £6 billion longevity swap, with Willis Towers Watson and CMS acting as trustees and lead advisers on the deal.

The longevity swap serves as a hedge against the risk of policyholders living longer than expected. The longevity risk was reinsured by the Prudential Insurance Company of America (PICA), a wholly owned subsidiary of Prudential Financial (PFI), while Zurich acted as intermediary on a “pass-through” basis.

It was PFI’s first use of a structure of this kind.

Ian Aley, head of transactions at Willis Towers Watson, said it had explored the “full breadth of available options for managing longevity risk” with the pension fund. “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,” he said.

In the first quarter of 2021 Willis Towers Watson led deals covering in excess of £10 billion of liabilities, he added, “demonstrating the robustness of the longevity de-risking markets and that pension scheme trustees are continuing to focus on risk reduction where it is affordable.”

James Parker, pensions partner at CMS, said: “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.”

Parker said the transaction “underlines the remarkable resilience of the longevity risk transfer market” following other deals CMS has worked on, including Pacific Life Re’s £10bn transaction with the Lloyds Banking Group pension scheme.