Prudential & L&G in fourth longevity reinsurance transaction

by Artemis on August 9, 2016

Prudential has once again increased the longevity reinsurance protection it is providing to UK re/insurer and pension risk transfer specialist Legal & General, with a fourth longevity reinsurance agreement between the pair announced today.

Prudential provided Legal & General with longevity reinsurance protection in a $2.2 billion deal in October 2014, again in a $2.9 billion transaction in August 2015. and for a third time earlier this year in a transaction for which the size was never announced.

Now, a fourth longevity reinsurance deal between the pair has been announced, as Prudential Retirement Insurance and Annuity Company has reinsured the longevity risk associated with a portion of Legal & General’s bulk annuity business, which the firm highlights is supportive of UK pensioners benefit security.

Once again, the size of this latest longevity reinsurance transaction has not been announced. However, Legal & General did reveal in its latest half-year results statement that it has reinsured £444m of longevity risk, related to new pension risk transfer and annuity type business that it entered into during H1 2016.

That £444m (or around US$580m) of longevity reinsurance that Legal & General has secured this year could be just these two arrangements with Prudential, however at this time we cannot confirm it.

Prudential highlights that in a post-Brexit world longevity reinsurance transactions are still possible, saying that “the ability to transfer longevity risk is unaffected by this momentous event.”

Bill McCloskey, vice president, Longevity Risk Transfer at Prudential Retirement, commented on the deal; “This latest transaction is particularly significant because Prudential was able to price and execute the transaction in a remarkably short period of time as a result of the existing relationship with Legal & General.

“The transaction also reflects the burgeoning trend of pension funds and insurers transferring risk and demonstrates our ability to leverage our insurance, pension and actuarial expertise, as well as our investment capabilities and financial strength to meet the market demand for reinsurance.”

Kunal Sood, head of new business reinsurance at Legal & General, added; “Our close consultative partnership with Prudential and the strength and commitment of the Prudential team enabled us to reinsure a segment of our annuity risk quickly.”

L&G provides bulk annuity transfers and other risk transfer services to pension funds, so assumes an increasing volume of pension liability related longevity risk. Some of this risk is retained by the insurer, but increasingly it looks to solutions to transfer this risk to other parties, with reinsurance currently the most-utilised option.

On the other side of the deal, Prudential continues to demonstrate its boundless appetite for longevity risk, as it makes use of the natural diversification this provides versus its mortality risk exposure. That enables Prudential to soak up large longevity reinsurance deals, without a need to transfer any of the risk on for now.

This latest reinsurance deal has been added to our directory of longevity swaps, risk transfer and reinsurance transactions.

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