Following the recent news that Prudential Financial, Inc., has entered into an agreement to reinsure $12.5 billion of in-force guaranteed universal life policies with Somerset Re, Fitch Ratings has confirmed that it views the announcement as being broadly credit neutral over the near term.
The $12.5 billion block of business represents approximately one-third of Prudential’s in-force guaranteed universal life statutory reserves.
Fitch also noted that the transaction represents the latest step in Prudential’s strategy to reduce exposure to market-sensitive liabilities, which will allow the firm to redeploy capital to support higher growth and less capital-intensive lines of business.
Under the agreement between the two companies, 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.
Meanwhile, Prudential’s new agreement with Somerset Re follows the company’s May 2023 agreement with a subsidiary of Constellation Insurance Holdings to reinsure a $10 billion block of Prudential Defined Income (PDI) traditional variable annuity contracts with guaranteed living benefits, representing 10% of the account value of Prudential’s remaining in-force traditional variable annuity policies.
This also followed the April 2022 close of the sale of its standalone full-service retirement business to Great-West LifeCo Inc. as well as the sale of approximately $31 billion of its in-force variable annuity block to Fortitude Re.
In a statement released by Fitch, the company said: “Although Prudential’s current ratings are not affected by the announced transaction, Fitch believes recent actions will have a favorable longer-term impact on PFI’s business risk profile. The most recent transaction follows similar actions by peers as well as a second-quarter 2022 reserve strengthening charge related to the company’s guaranteed universal life policies.”
Lastly, it is worth highlighting that the cumulative actions taken by Prudential may modestly reduce both the level and diversification of earnings in the short term, however Fitch notes that continued growth in mortality-based earnings and cash flow from Japan and other non-US insurance markets, as well as continued growth in asset management enhance the company’s diversification.
