Prudential Retirement, a unit of Prudential Financial, Inc., has concluded about $2.6 billion in previously undisclosed longevity reinsurance contracts, an important signal of an unprecedented start to the 2019 U.K. pension risk transfer market.
In a statement, Prudential explained that, as part of these transactions, Prudential Retirement has assumed the longevity risks of approximately 16,000 pensioners.
According to Prudential, this early 2019 de-risking wave was driven in part by many pensions seeking to close agreements prior to the original March 29 Brexit deadline. But with the Brexit deadline extended until late October, pensions that have not yet transacted have an unexpected window to move forward and de-risk.
Demand for de-risking solutions also has been driven by the robust funded status of U.K. schemes, which have improved since 2016. The funding level of the average U.K. pension scheme stood at 100.1 percent on March 29, putting many in a favorable position to reduce risks.
“Pension schemes that can afford to de-risk have raced forward in the opening months of 2019, taking advantage of the window before Brexit to reduce their risks and lock in gains,” said Amy Kessler, head of longevity reinsurance at Prudential Financial. “Brexit brings increasing levels of uncertainty that could wash away recent market gains and funding improvements, putting de-risking out of reach for those with lower hedge ratios. But with funding at the highest levels in a decade, pensions are de-risking at an unprecedented pace.”
“Another impetus to de-risk is the notable decline in U.K. mortality rates during the last 10 months,” said Christian Ercole, vice president at Prudential Financial. “The resulting level of market activity favors insurers and reinsurers who have invested in their pricing and analytics teams, and it also favors pension funds that come prepared with credible and complete data.”
Prudential has closed more than $60 billion in international reinsurance transactions since 2011, including the largest longevity risk transfer transaction on record, a $27.7 billion transaction involving the BT Pension Scheme.
Reinsurance contracts are issued by Prudential Retirement Insurance and Annuity Company (“PRIAC”), Hartford, Connecticut, or The Prudential Insurance Company of America (“PICA”), Newark, New Jersey. Both are wholly owned subsidiaries of Prudential Financial, Inc. Neither PRIAC nor PICA is licensed or regulated by the U.K. Prudential Regulation Authority as an insurer or regulated by the Financial Conduct Authority, nor does either conduct business in the United Kingdom or provide direct insurance to any individual or entity therein. Prudential Financial, Inc. of the United States is not affiliated with Prudential plc, a company headquartered in the United Kingdom.
Victoria Spears
Victoria Prussen Spears is senior vice president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. A graduate of Sarah Lawrence College and Brooklyn Law School, Ms. Spears was an attorney at a leading New York City law firm before joining Meyerowitz Communications. She may be contacted at [email protected].