An innovative new approach for expediting longevity reinsurance transactions
March 27, 2018 — NEWARK, N.J.–(BUSINESS WIRE)–A collaborative effort between Prudential Retirement, a unit of Prudential Financial, Inc. (NYSE:PRU), and Pension Insurance Corporation (PIC) has created an innovative new approach for expediting longevity reinsurance transactions for smaller pension buy-ins and buy-outs. This new approach combines an advance commitment of capital, known pricing and the bundling of multiple transactions into a single closing to enable PIC to more nimbly and efficiently address the risk transfer needs of small pensions and their retirees.
Launched, tested and proven effective by Prudential and PIC throughout 2017, this flow reinsurance structure has shown itself to be an effective tool for increasing the primary insurer’s capital efficiency and reducing the administrative burden for both the primary insurer and the reinsurer. With new models and predictive analytics, this systematic approach helps streamline the reinsurance transaction process for PIC’s smaller pension buy-in and buy-out transactions that meet pre-agreed criteria. These blocks will be reinsured by Prudential at the model-determined price.
“This approach is a win for PIC, a win for Prudential, and a win for the market,” said Amy Kessler, Prudential’s head of longevity reinsurance. “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.”
Historically, the longevity reinsurance market for smaller pension buy-ins and buy-outs has been difficult to serve because of the complexity and administrative burden of pricing and executing contracts for each small transaction. Prudential and PIC, having worked together for years on multiple risk transfer transactions, started collaborating on this project almost two years ago as part of a joint effort to find better, more efficient ways to serve these smaller pension schemes.
The approach developed by Prudential and PIC creates economies of scale, execution efficiency and greater flexibility, enabling both companies to better meet the needs of this rapidly growing market.
Khurram Khan of Pension Insurance Corporation 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.”
Bill McCloskey, Prudential’s head of transactions for international longevity reinsurance, said: “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.”
About Pension Insurance Corporation
The purpose of Pension Insurance Corporation plc (“PIC”) is to pay the pensions of its policyholders. At year-end 2017, PIC had insured 151,600 pension scheme members and had £25.7 billion in financial investments, accumulated through the provision of tailored pension insurance buy-outs and buy-ins to the trustees and sponsors of U.K. defined benefit pension schemes. Clients include FTSE 100 companies, multinationals and the public sector. PIC is authorized by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority (FRN 454345). For further information please visit www.pensioncorporation.com.
About Prudential Financial, Inc.
Prudential Financial, Inc. (NYSE: PRU), a financial services leader with more than $1 trillion in assets under management as of December 31, 2017, 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 $429.1 billion in retirement account values as of Dec. 31, 2017. 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.