Prudential Retirement, a unit of Prudential Finance, Inc., and Pension Insurance Corporation (PIC) have collaborated on a new approach to expedite longevity reinsurance transactions on smaller pension buy-ins and buy-outs.
The partnership will allow PIC to more efficiently address the risk transfer needs of small pensions by combining an advance commitment of capital and known pricing, and by grouping multiple transactions into a single closing.
This flow reinsurance structure has already been tested by Prudential and PIC over 2017, and has proven to be an effective tool for increasing the primary insurer’s capital efficiency and reducing overall administrative strain.
The longevity reinsurance market for smaller pension buy-ins and buy-outs has traditionally been challenging due to the complexity and administrative burden of pricing and implementing contracts for every transaction, but Prudential claims the new models and predictive analytics of this fresh systematic approach will streamline the process.
Amy Kessler, Prudential’s Head of Longevity Reinsurance, said: “This approach is a win for PIC, a win for Prudential, and a win for the market. It is a win for the market because it supports the continued growth of the small-transaction segment very effectively.
“It is a win for PIC because it has reinsurance capital lined up at a known price to support its fantastic work with smaller schemes. Finally, it is a win for Prudential because it helps us to efficiently reinsure a diverse and important segment of the U.K. market.”
Prudential and PIC began collaborating on this project two years ago, having already spent years working on multiple risk transfer transactions together.
The new approach is expected to meet the needs of the fast-growing small pensions market by creating economies of scale, execution efficiency, and greater flexibility.
Khurram Khan, Head of Longevity Risk at PIC, said: “This evolution in longevity risk hedging brings with it greater automation and certainty to the reinsurance of U.K. bulk annuities. PIC continues to develop other such products in conjunction with enterprising reinsurers such as Prudential.”
Additionally, Bill McCloskey, Prudential’s Head of Transactions for International Longevity Reinsurance, commented: “This new process leverages Prudential’s and PIC’s innovative cultures and execution capabilities. We have enjoyed collaborating with PIC to help find better ways to address their needs in managing pension-related longevity risk.”