Prudential Retirement®, a unit of Prudential Financial, Inc. (NYSE: PRU), has concluded $3.2 billion in previously undisclosed longevity reinsurance contracts, a further sign that pension de-risking activity in the U.K. is continuing at a brisk pace. As part of these transactions, The Prudential Insurance Company of America (PICA) assumes the longevity risk for approximately 13,200 retirees.
The market for pension de-risking solutions is expanding at its fastest pace in years, in part because such activity has become more affordable than at any point in the last decade. The affordability of pension buy-ins and buy-outs is due in part to the improved funded status of U.K. schemes, which, on average, were at or near full funding in the summer of 2018. This improvement in funded status represents a marked increase over the last two years.
Amy Kessler, head of longevity risk transfer at Prudential, said: “The average U.K. pension scheme is at or near full funding, a material improvement over the last two years. That is happening at the same time longevity improvements have slowed, which has made pension de-risking more affordable than it has been in years. Pensions are actively taking advantage of this environment by locking in these gains and transferring risk, knowing that such periods don’t last forever.”
These agreements follow at least 10 others during the last 12 months that are $1 billion or more in size. Collectively, these U.K. longevity reinsurance and longevity swap agreements are building toward one of the best years on record in this market, driven by pension schemes eager to capitalize on their improved funded status and take risk off the table.
“The unprecedented level of market activity in 2018 favors insurers and reinsurers who have invested in their pricing teams and analytics. It also favors pension schemes that come prepared with credible and complete data,” said David Lang, vice president at Prudential Financial. “And while there is plenty of insurer and reinsurer capital for these transactions, the biggest factor constraining the market today is the human capital needed to bring deals through to closing.”
Prudential is a global leader in the pension reinsurance market with more than $50 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.
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