Prudential Staff Pension Scheme completes $4.8 billion longevity swap

Prudential Staff Pension Scheme, Chelmsford, England, has entered into a £3.7 billion ($4.8 billion) longevity swap with Pacific Life Re.

The swap is the first pension risk transfer transaction for the firm, said a spokesman for Willis Towers Watson, lead adviser on the deal.

The swap covers more than 20,000 retirees and provides protection against costs that might result from unexpected increases in life expectancy for participants.

The £7 billion pension fund is the largest of sponsoring employer M&G PLC's U.K. retirement plans. M&G also sponsors a £400 million defined contribution plan.

The deal was structured through a captive insurance company because reinsurers can only deal with entities with an insurance license. The insurer was established in Guernsey and is owned by the trustee of the pension fund. Pacific Life Re was chosen to reinsure the deal following a competitive tender process, a news release said.

The transaction is the fifth-largest longevity swap in the U.K., according to WTW. The largest was a £16 billion swap for the BT Pension Scheme, London, in 2014.

In a notice published on the Prudential Staff Pension Scheme's website Wednesday, Keith Bedell-Pearce, chairman of the trustees, said: "The longevity insurance arrangement will form part of the scheme's investment portfolio and will continue to provide income to the scheme in the event that pensions need to be paid for longer than expected. This provides additional protection to the scheme's funding position."