Prudential to reinsure $10bn variable annuity block with Constellation

Prudential Financial has struck a deal with Constellation Insurance Holdings to reinsure a $10 billion block of variable annuities, in a bid to enhance capital flexibility and decrease market sensitivity as part of its transformation strategy.

Prudential will reinsure a portion of its traditional variable annuity block with an affiliate of Constellation for proceeds at closing resulting in approximately $650 million.

The block relates to Prudential Defined Income (PDI) traditional variable annuity contracts with guaranteed living benefits issued by Pruco Life Insurance Company (PLAZ), a subsidiary of Prudential Financial. This represents approximately 10% of Prudential’s remaining legacy in-force traditional variable annuity block by account value.

The transaction is expected to close by the end of second quarter of 2023. Upon closing, Prudential anticipates a reduction to after-tax annual adjusted operating income of approximately $50 million.

“We have successfully achieved our strategic objective of lowering our proportion of traditional variable annuities,” said Charles Lowrey, chairman and CEO of Prudential Financial. “Looking ahead, we are focused on expanding access to retirement security and serving the income and protection needs of millions of Americans through our diverse and attractive portfolio of annuity solutions, including our FlexGuard suite and fixed annuities.”

Anurag Chandra, founder, chairman and CEO of Constellation, said: “We are pleased to partner with Prudential in our inaugural block reinsurance transaction as we establish our M&A / Reinsurance segment as an integral part of the overall enterprise alongside our US life insurance, US annuities and Latin America segments.

“This transaction exemplifies our strategic focus for the M&A / Reinsurance segment to execute opportunistic inorganic transactions that provide significant synergies with our existing platform and strengthen and diversify the overall enterprise financial and risk profile.”

“This is a unique, lower risk variable annuity block with no equity market exposure which provides significant risk management, earnings diversification, reserve aggregation and capital covariance benefits given the complementary profile of this block relative to our existing legacy business,” noted Scott Shepherd, chief risk officer of Constellation.”

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