The Barclays Bank UK Retirement Fund agreed to a £7 billion ($8.1 billion) longevity swap with Prudential Insurance Company of America to hedge against an unexpected rise in life expectancy for its participants.
Under a longevity swap, a pension plan and the swap provider estimate the expected payments that will become due to the plan’s participants and for how long these payments will be owed. Reflecting the expected payments, the plan then makes fixed payments to the swap provider for the duration of the agreement. In return, the swap provider pays the trustees variable amounts that are payable as long as each member lives.
If a member lives as long as expected, the two payments will cancel each other out. However, if a participant lives longer than expected, then the swap will provide income to the pension fund from the insurer.
It is the UKRF’s second multi-billion-pound longevity transaction, having executed a £5 billion deal with the Reinsurance Group of America in December 2020. Including both longevity swaps, a statement by the fund said more than 75% of current retirees’ longevity risk is now being hedged.
“This second longevity transaction is an important part of our continued de-risking of the UKRF and improves benefit security for all members,” Peter Goshawk, chair of the UKRF Trustee Board, said in a statement.
According to insurance and consulting services firm Aon, which was the lead adviser to UKRF on the transaction, 2022 has been another big year for the UK longevity swap market: The total value of business written is expected to surpass £15 billion for the third consecutive year. Aon said it is likely 2022 will close second only to 2020’s £24 billion in terms of total liabilities reinsured, and it continues to see a focus on larger deals in excess of £1 billion.
Allen & Overy provided the fund with legal counsel.
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Tags: Allen & Overy, Aon, Barclays Bank UK Retirement Fund, longevity swap, Pension Risk, Peter Goshawk, Prudential Financial, Prudential Insurance, UKRF, Willkie Farr & Gallagher