Prudential Closes $3.2 Billion in New UK Longevity Reinsurance Deals

Firm says market for pension de-risking is expanding at its fastest pace in years.

US-based Prudential Retirement, a unit of insurance giant Prudential Financial, has concluded $3.2 billion in previously undisclosed longevity reinsurance contracts, which the company says is another sign that pension de-risking activity in the UK is continuing at a brisk pace.

As part of the transactions, Prudential assumes the longevity risk for approximately 13,200 British retirees.

“The market for pension de-risking solutions is expanding at its fastest pace in years,” said Prudential in a release, “in part because such activity has become more affordable than at any point in the last decade.”

Prudential said the affordability of pension buy-ins and buy-outs is due in part to the improved funded status of UK pension plans.

“The average UK pension scheme is at or near full funding, a material improvement over the last two years,” Amy Kessler, Prudential’s head of longevity risk transfer, said in a release. “Pensions are actively taking advantage of this environment by locking in these gains and transferring risk, knowing that such periods don’t last forever.”

According to JLT Employee Benefits, the funding level of the pension plans of the FTSE 100 and FTSE 350 companies reached 100% and 99%, respectively, in October, while the funded level for all private sector pension plans in the UK is 98%.

Prudential said the longevity reinsurance contracts follow at least 10 others during the last 12 months that are $1 billion or more in size. It also said 2018 is shaping up to be one of the best years on record in the market.

“The unprecedented level of market activity in 2018 favors insurers and reinsurers who have invested in their pricing teams and analytics,” said David Lang, vice president at Prudential Financial. “It also favors pension schemes that come prepared with credible and complete data.”

Earlier this month, International Paper purchased a $1.6 billion group annuity contract from the Prudential Insurance Company of America, which moved the benefit obligations of 23,000 retirees to the insurer. The deal was the second-largest agreement in 2018, behind FedEx’s $6 billion arrangement with MetLife in May.

Tags: , , ,