Prudential executes $6bn in longevity reinsurance for Rothesay Life

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Prudential said that it has executed another $6 billion of longevity reinsurance transactions with UK pension risk transfer specialist life insurer Rothesay Life, in two transactions that are the seventh and eighth between the pair.

prudential-logoThe Prudential Insurance Company of America (PICA), a unit of Prudential Financial, Inc., said it has closed these two longevity reinsurance deals with Rothesay Life Plc in the closing stages of 2019, reinsuring a combined $6 billion of pension liabilities associated with two bulk annuity transactions from the second-half of last year.

Having completed these transactions towards the close of 2019, the executive team at Prudential now expect a buoyant pension risk transfer market in 2020, suggesting the need for more longevity reinsurance capital and hedges such as longevity swaps.

“2019 was an extraordinary year in the global risk transfer markets, having started the year at the best funded status that U.S., U.K. and Canadian pension funds had seen since the financial crisis,” explained Amy Kessler, head of longevity risk transfer for PFI. “This, together with excellent asset availability, a vibrant, well-capitalized insurer and reinsurer market allowed many schemes to transact ahead of when they might have expected to and put the industry on a path to break records in 2019.

“In late 2019 and early 2020 we have observed some weakening in funded status, and many sponsors will need to monitor the market closely as strong insurer and reinsurer pricing continue to provide opportunities for sponsors to de-risk.”

“These transactions with Rothesay Life prove the value of being prepared,” added Scott Gaul, who now leads PFI’s Investment and Pension Solutions businesses. “They were pursued in a thoughtful and efficient manner, driven by long-term de-risking goals set by the pension schemes, culminating in the ability to transfer risk in an incredibly busy marketplace. Looking ahead to 2020, in order for opportunistic transactions to work in our extremely busy pension risk transfer markets, the scheme, consultants, insurers and reinsurers all have to be aligned, prepared, and ready to act.”

Dave Lang, vice president and PFI’s relationship manager for Rothesay, also said, “The longstanding partnership between PFI and Rothesay Life dates back to our first transaction in 2011,” Lang said. “This trusting relationship helped get these two very important transactions done while market conditions held.”

“2019 was a record year for Rothesay Life, and we were delighted to have PICA alongside us to provide reinsurance on two of the largest transactions of the year,” explained David Cox, head of reinsurance, Rothesay Life. “The Rothesay Life and PICA teams have been working together for nearly a decade now, and the well-established relationship and processes enabled us to close two deals in a timely and efficient manner.”

Volatility has been seen to increase in recent weeks, but the market has begun 2020 with relatively high levels of activity. Smaller to mid-sized pensions are expected to take advantage of market conditions to come to market, as a result.

“In 2020, smaller transactions will be a growth area to watch, as will the burgeoning risk transfer markets in Canada and the Netherlands,” Kessler concluded.

Read details of many longevity hedging transactions in our longevity swap, reinsurance and risk transfer deal directory.

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