Yorkshire and Clydesdale Bank Pension Signs $2 Billion PRT Deal

U.K.-based Yorkshire and Clydesdale Bank Pension Scheme has signed a pension risk transfer deal for approximately £1.6 billion ($2 billion) worth of liabilities with Pacific Life Re International Ltd. and Zurich Assurance Ltd.

The pension fund said the agreement is intended to provide long-term protection to its participants against rising costs that result from retirees and their dependents living longer than expected.

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The longevity swap insurance policy is structured as an insurance arrangement between the pension fund’s trustee and Zurich Assurance and a back-to-back reinsurance agreement between Zurich Assurance and Pacific Life Re using Zurich Assurance’s pass-through structure. Under the pass-through structure, Pacific Life assumes 100% of the longevity risk associated with the approximately 9,000 plan members, and the trustee and Pacific Life take on mutual credit risk exposure to each other. The arrangement will form part of the pension plan’s investment portfolio and will provide it with income if members live longer than currently expected.

Inder Dhingra, chairman of the Yorkshire and Clydesdale Bank Pension Scheme, said in a release that the longevity swap “will provide significant protection for our members against the costs associated with future increases in life expectancy.”

WTW’s Sadie Scaife, the lead adviser to the plan’s trustee, said in a statement that the deal was negotiated and implemented during significant market volatility, which “goes to show that longevity swaps continue to be an effective risk management option for pension schemes,” adding that “there is strong appetite in the reinsurance market for longevity risk.”

According to data from Legal & General, the total market volume for the U.K. pension risk transfer market declined to £26 billion in 2022 from £30 billion in 2021. Nevertheless, it was the fourth consecutive year the market topped £25 billion and is estimated to be the fourth-largest year on record.

Legal & General expects increased demand for pension risk transfer deals in 2023, noting an increase in the number of pension plans approaching the insurance market and that the pipeline this year is the busiest it has seen.