The market for pension scheme hedging, de-risking and pension risk transfer has taken another step forward as Prudential announced the completion of the first pension buy-in transaction in the United States. To date the pension risk transfer market has been more prevalent in Europe.
Prudential’s Portfolio protected Buy-in product was used to transfer $75m of North Carolina manufacturing company Hickory Springs Manufacturing Company’s pension scheme investment and longevity risks to Prudential Retirement (a business unit of Prudential Financial).
The potential for this market is enormous as most owners of pension schemes and their trustees struggle to get to grips with issues such as longevity (risk of pensioners living longer than expected, interest rate risks, market risks and meet their pension obligations.
“Prudential is pleased to be the first company to bring a pension buy-in to employers in the U.S. We are also honored to be Hickory Springs’ provider of choice,” said Phil Waldeck, senior vice president and head of Prudential Retirement’s Pension & Structured Solutions business.
“Prudential’s Portfolio Protected Buy-in will help Hickory Springs reduce its pension plan risk and fulfill its fiduciary obligations,” Waldeck continued. “This transaction underscores Prudential’s ability to deliver flexible, innovative solutions that combine our core strengths in retirement, insurance and asset management.”
While not transferring these risks to the capital market, growth in the buy-in and buy-out area of pension risk transfer is likely to create further interest in other forms of longevity risk transfer and could result in the companies who take on pension liabilities needing assistance to hedge the risks they have assumed.
You can read the full press release here on the Prudential website.