Prudential reinsures $1.4bn of pension longevity risk for Aviva

Prudential Retirement, part of Prudential Financial, Inc. has entered into an agreement to reinsure roughly $1.4 billion (UK £1bn) of pension liability related longevity risk for Aviva Life and Pensions U.K. Ltd., the first such transaction between the two life, pension and annuity giants.

Prudential is no stranger to large longevity reinsurance transactions, having a track record of assuming significant amounts of longevity risks from pensions, annuity providers and other life related re/insurers.

The arrangement sees The Prudential Insurance Company of America (PICA) assuming the longevity risk for the nearly $1.4 billion of Aviva pension liabilities, at a time when the UK market sees significant derisking demand from providers of pensions looking to shed longevity risk, or entire books of business.

Prudential said that the increasing demand is also driven by the fact that pension risk transfer is becoming more affordable, as a result of attractive pricing that reflects the enhanced capacity of insurers, as well as the fact many U.K. pension schemes are better financed and approaching being fully funded.

“We are delighted to establish a new relationship with Aviva,” commented William McCloskey, Prudential’s head of international transactions for longevity reinsurance. “Over the last several years, Aviva has become a premier pension insurance provider, one that has made thoughtful investments in its capabilities to support the continued expansion of the U.K. pension risk transfer market. We are thrilled to collaborate and partner with Aviva on such an important agreement.”

Tom Ground, managing director of defined benefit solutions at Aviva, added, “We’re delighted to have entered into this transaction with PICA. As one of the leading reinsurers, it has the credentials and scale to support our own growth ambitions as we continue to increase deal volumes in the U.K. We hope this deal is just the start of a longer-term relationship.”

Amy Kessler, head of longevity risk transfer at Prudential, also said, “Market activity in 2018 is building toward a very strong second half. Rising rates and equities, combined with lower-than-expected longevity improvements, mean that pension schemes are very well-funded and that de-risking is more affordable than ever. Leading pension schemes are taking advantage of this favorable environment by locking in gains and transferring risk, knowing that such advantageous markets are always fleeting.”

Activity in longevity risk transfer, while not at record levels, has been substantial in recent months, with at least 10 transactions of over $1 billion in size in the market during the last year.

Prudential said that, “These U.K. longevity reinsurance and longevity swap agreements signify a noticeable market surge, driven by pension schemes eager to capitalize on their improved funded status, and take risk off the table.”

Interestingly, U.K. pension scheme funding levels have improved markedly since the Brexit vote of 2016, boosted by fresh contributions, strong investment performance and higher gilt yields, Prudential explained.

As pensions get to a better funded status, they are more ready and able to afford and manage the entry into longevity risk transfer, hence the expectation is for more reinsurance and longevity swap transactions to come to market.

Prudential now has over $50 billion in international reinsurance transactions executed since 2011, including the largest longevity risk transfer transaction on record, a $27.7 billion transaction involving the BT Pension Scheme.

Read about numerous historical longevity swap and reinsurance transactions, in our Longevity Risk Transfer Deal Directory.