August 8, 2018

Prudential, U.K. insurer ink $1.4B pension “de-risking” contract

Prudential's retirement division, which is headquartered in downtown Hartford, said it has signed a reinsurance deal under which it will assume nearly $1.4 billion in longevity risk for pension liabilities insured by London-based insurer Aviva.

The risk Prudential is assuming, specifically, is that pension beneficiaries in the plans insured by Aviva live longer than expected.

The contract falls under a growing trend of pension "de-risking" that is particularly prevalent in the United Kingdom, as plan sponsors -- particularly those with stronger plan funded status -- seek to lessen their contribution risk, improve the consistency of their financial results and focus more on their core business, according to Prudential.

A separate form of pension de-risking is when an insurer buys pension assets, assuming the responsibility for paying beneficiaries as well as the risk that financial markets don't perform as hoped. There are also deals that involve lump-sum payouts to beneficiaries.

Prudential says it has done more than $50 billion in international reinsurance transactions since 2011, including a record $27.7 billion deal in 2014 with Britain's largest corporate pension fund.

While the U.K. is seen as a leading market for de-risking, the trend has also caught on in the U.S.

Windsor-based LIMRA Secure Retirement Institute reported in May that U.S. corporate pension plan buyout sales in the first three months of 2018 exceeded $1 billion for the 12th consecutive quarter.

In recent years, Prudential has done pension de-risking deals of various types with companies such as The Hartford, General Motors and Bristol Myers Squibb.

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