Prudential Financial, Inc. has announced an agreement to reinsure a significant portion of its guaranteed universal life block with Somerset Re, leading to proceeds totaling approximately $450 million.
Under this agreement, Somerset Re will reinsure reserves worth approximately $12.5 billion, which back Prudential’s guaranteed universal life policies issued by Pruco Life Insurance Company and Pruco Life Insurance Company of New Jersey.
The policies covered by this transaction were written before 2015, making up approximately one-third of Prudential’s total guaranteed universal life statutory reserves.
Charles Lowrey, the Chairman and CEO of Prudential Financial, emphasized that the deal is a significant milestone in their efforts to reduce market sensitivity and enhance capital flexibility. He reassured that Prudential will continue to provide a comprehensive and attractive portfolio of life insurance solutions to cater to the diverse needs of their customers.
Jeffrey Burt, Chairman and CEO of Somerset Re Group, expressed delight in expanding their risk management support for Prudential Financial through this transaction. This marks the third reinsurance agreement between Somerset Re and Prudential, showcasing the depth of solutions Somerset Re brings to its business partners.
Notably, the reinsurance agreement will not lead to any changes for the contracts included in the transaction. Prudential will retain responsibility for servicing the block and maintaining its existing relationships with contract holders and distribution partners.
Furthermore, the agreement is structured on a modified coinsurance basis and includes crucial structural protections like overcollateralisation and investment guidelines. As part of the transaction, PGIM will continue to retain an investment mandate related to a portion of the assets supporting the block.
The transaction is anticipated to be finalised in the fourth quarter of 2023, subject to regulatory approval from the Bermuda Monetary Authority and other customary adjustments at closing.
Upon closing, Prudential expects a post-tax annual adjusted operating income increase of approximately $55 million, along with the amortisation of the cost or benefit of reinsurance, which is expected to be accretive to earnings. However, the final details will be concluded during the closing period.
Prudential has been advised by Wells Fargo Securities, LLC as the exclusive financial advisor, and Willkie Farr & Gallagher LLP as the legal counsel for this transaction. On the other hand, Mayer Brown LLP served as legal counsel to Somerset Re, while RBC Capital Markets provided advisory services to Somerset Re.
Prudential expects one-time expenses of approximately $65 million in the fourth quarter of 2023, mainly due to the extinguishment of certain financing facilities.
