The Prudential Retirement Insurance and Annuity Company (PRIAC), a Prudential Financial unit, has concluded a reinsurance agreement which will see it assume longevity risk for about $800 million in pension liabilities, which are held by Legal & General as part of its bulk annuity business.
This transaction covers more than 2,000 pensioners and represents the sixth longevity reinsurance agreement between Legal & General and Prudential, bringing the total sum of the entities’ longevity risk transfers up to $8 billion.
“Prudential is proud to strengthen its partnership with Legal & General,” said David Lang, Prudential’s lead negotiator for this transaction; “as a result of these agreements, Legal & General can better manage its longevity risk and secure the retirement benefits of thousands of U.K. pensioners.”
Prudential’s most recent transaction with Legal & General prior to this was in October 2016.
Joyeeta Kanungo, head of new business reinsurance for Legal & General said the transaction is another example of longevity reinsurance having a positive impact in enabling U.K. pension schemes to de-risk efficiently.
Prudential’s head of transactions for international longevity reinsurance, Bill McCloskey, said; “the longevity reinsurance market is more vibrant than ever, especially in the U.K.
“With this agreement, Legal & General is tapping into Prudential’s unique ability to keep up with the huge demand in the market today, and benefits from our use of predictive analytics and the strongest transaction team in the industry.
“These investments have enabled Prudential to develop and sustain meaningful relationships with its insurance counterparties.”
Prudential has completed over $45 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.
Market demand for longevity reinsurance and de-risking of pension schemes in the UK has grown significantly since the 2016 Brexit vote – the de-risking of pension schemes has become an expectation among shareholders and key stakeholders across the globe.
According to a Hymans Robertson report, demand for bulk annuity buy-ins is expected to quadruple over the next 15 years as £700 billion worth of defined benefit pension scheme liabilities are forecast to be passed to insurers by 2032.
Around one-third of current defined benefit (DB) pension risk schemes could reach self-sufficiency over the next 15 years as UK firms increasingly look to offload this risk.