NEWARK, N.J.--(BUSINESS WIRE)--Prudential Retirement®, a unit of Prudential Financial, Inc. (NYSE:PRU), and Aviva Life and Pensions U.K. Ltd. have struck their first longevity reinsurance transaction, establishing a new reinsurance partnership between these two market leaders. As part of the transaction, The Prudential Insurance Company of America (PICA) assumes the longevity risk for approximately £1 billion (nearly $1.4 billion) in pension liabilities.
This agreement comes amid surging demand for de-risking from the U.K., where pension insurers are increasingly seeking to manage their risk and capital with longevity reinsurance arrangements. Demand is also driven by the increasing affordability of pension risk transfer, reflecting attractive pricing and the enhanced capacity of insurers, as well as the improved finances of U.K. schemes, many of which are approaching full funding.
“We are delighted to establish a new relationship with Aviva,” said William McCloskey, Prudential’s head of international transactions for longevity reinsurance. “Over the last several years, Aviva has become a premier pension insurance provider, one that has made thoughtful investments in its capabilities to support the continued expansion of the U.K. pension risk transfer market. We are thrilled to collaborate and partner with Aviva on such an important agreement.”
Tom Ground, managing director of defined benefit solutions at Aviva, said: “We’re delighted to have entered into this transaction with PICA. As one of the leading reinsurers, it has the credentials and scale to support our own growth ambitions as we continue to increase deal volumes in the U.K. We hope this deal is just the start of a longer-term relationship.”
Amy Kessler, head of longevity risk transfer at Prudential, added: “Market activity in 2018 is building toward a very strong second half. Rising rates and equities, combined with lower-than-expected longevity improvements, mean that pension schemes are very well-funded and that de-risking is more affordable than ever. Leading pension schemes are taking advantage of this favorable environment by locking in gains and transferring risk, knowing that such advantageous markets are always fleeting.”
The agreement follows at least 10 others in the market during the last 12 months that have exceeded $1 billion in size. Collectively, these U.K. longevity reinsurance and longevity swap agreements signify a noticeable market surge, driven by pension schemes eager to capitalize on their improved funded status, and take risk off the table.
Funding levels of U.K. pension schemes have improved markedly since the Brexit vote of 2016, boosted by fresh contributions, strong investment performance and higher gilt yields (which lower the present value of future liabilities).
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.
Aviva provides life insurance, general insurance, health insurance and asset management to 33 million customers. In the U.K., we are the leading insurer serving one in every four households and have strong businesses in selected markets in Europe, Asia and Canada. Our shares are listed on the London Stock Exchange and we are a member of the FTSE 100 index.
Aviva’s asset management business, Aviva Investors, provides asset management services to both Aviva and external clients, and currently manages over £350 billion in assets. Total group assets under management at the Aviva group are £490 billion. Aviva helps people save for the future and manage the risks of everyday life; we paid out £34.6 billion in benefits and claims in 2017. By serving our customers well, we are building a business which is strong and sustainable, which our people are proud to work for, and which makes a positive contribution to society.
About Prudential Financial, Inc.
Prudential Financial, Inc. (NYSE:PRU), a financial services leader with more than $1 trillion in assets under management as of June 30, 2018, has operations in the United States, Asia, Europe, and Latin America. Prudential’s diverse and talented employees are committed to helping individual and institutional customers grow and protect their wealth through a variety of products and services, including life insurance, annuities, retirement-related services, mutual funds and investment management. For more information, please visit news.prudential.com.
Prudential Retirement delivers retirement plan solutions for public, private, and nonprofit organizations. Services include defined contribution, defined benefit and non-qualified deferred compensation recordkeeping, administrative services, investment management, comprehensive employee education and communications, and trustee services, as well as a variety of products and strategies, including institutional investment and income products, pension risk transfer solutions and structured settlement services. With more than 85 years of retirement experience, Prudential Retirement helps meet the needs of 4.3 million participants and annuitants. Prudential Retirement has $433 billion in retirement account values as of June 30, 2018. Retirement products and services are provided by The Prudential Insurance Company of America (PICA), Newark, N.J., or its affiliates.
Reinsurance contracts are issued by either Prudential Retirement Insurance and Annuity Company (PRIAC), Hartford, Conn., or PICA. Both are wholly owned subsidiaries of Prudential Financial, Inc., and each company is solely responsible for its financial condition and contractual obligations. 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.