Yorkshire and Clydesdale Bank (YCB) Pension Scheme has entered into a US$2 billion (£1.6 billion) longevity swap arrangement with Zurich Assurance Ltd. and Pacific Life Re International Limited.
The deal will provide protection for the pension scheme’s around 9,000 members against the costs associated with future increases in life expectancy, with Pacific Life Re assuming 100% of the longevity risk. The trustee and Pacific Life Re will take on mutual credit risk exposure to each other.
The longevity swap arrangement will deliver income to the scheme in the event pensioners live longer than anticipated, and forms part of the pensions investment portfolio. The trustee and Pacific Life Re will be exposed to mutual credit risk exposure to each other. The trustee of the YCB Pension Scheme, Inder Dhingra, said, “The Trustee is delighted to have completed this longevity swap which will provide significant protection for our members against the costs associated with future increases in life expectancy.”
The deal will secure member benefits, say executives
The deal marks a key milestone in the Scheme’s management of risk and underlines their commitment to securing member benefits. The transaction was negotiated and implemented over a period of significant volatility in the market and demonstrates that longevity swaps continue to be an effective risk management option for pension schemes.
Sadie Scaife, of Willis Towers Watson, the lead adviser to the Trustee, said, “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.”
Pacific Life Re’s Business Development Director, Howie Timothy, said, “This transaction is the result of a huge amount of collaboration and acts as another great example of how the reinsurance sector can offer strength and capacity to assist pension schemes in meeting their de-risking objectives. 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.”
Willis Towers Watson predicts busier market year
The deal comes as Willis Towers Watson previously forecast US$25 billion (£20 billion) of longevity swaps for 2023, predicting a busier year for the market, driven by increasing reinsurance capacity and market participants being available and attracted to longevity risk transfer.
Greg Wenzerul, Head of Longevity Risk Transfer at Zurich Assurance, added, “We are pleased our solution matched the Trustee’s requirements for their de-risking journey. This transaction was executed efficiently due to effective and pragmatic collaboration by the parties involved.”
The transaction marks the first longevity swap arrangement of 2023 that has been covered and listed in the directory of longevity swaps, longevity reinsurance, and longevity risk transfer deals.
