Prudential to reinsure $12.5bn life block with Somerset Re

Prudential Financial is set to cede a segment of its guaranteed universal life block with Bermuda-based Somerset Re, generating around $450 million in proceeds. The funds will help bolster the company’s transformation strategy, aimed at reducing market sensitivity and increasing capital flexibility.

The deal will see Somerset Re reinsure approximately $12.5 billion of reserves backing Prudential Financial’s guaranteed universal life policies issued by subsidiaries Pruco Life Insurance Company and Pruco Life Insurance Company of New Jersey.

The transaction, covering policies written prior to 2015, represents approximately one-third of Prudential’s total guaranteed universal life statutory reserves.

The reinsurance transaction is structured on a modified coinsurance basis and contains significant structural protections, including overcollateralisation and investment guidelines. In connection with the transaction, PGIM will retain an investment mandate related to a portion of the assets supporting the block.

The transaction is expected to close in the fourth quarter of 2023, subject to regulatory approval, including the Bermuda Monetary Authority.

Upon closing, Prudential anticipates an increase in after-tax annual adjusted operating income of approximately $55 million, plus amortisation of the cost or benefit of reinsurance, which is currently expected to be accretive to earnings, but will be finalised at closing.

Prudential said that the agreement does not result in any changes for contracts included in the transaction. The company will continue to service the block and maintain its existing relationships with contract holders and distribution partners. Prudential noted that it does not expect any direct impact to employee headcount as a result of the transaction.

Charles Lowrey, chairman and CEO of Prudential Financial, said: “This transaction marks another significant milestone in our efforts to reduce market sensitivity and increase capital flexibility. Looking ahead, we remain committed to offering a comprehensive and attractive portfolio of life insurance solutions to meet the diverse needs of our customers.”

Jeffrey Burt (pictured), chairman and CEO of Somerset Re Group, added: “Somerset Re is pleased to expand its risk management support for Prudential Financial in this transaction. This represents our third reinsurance agreement with Prudential, demonstrating the breadth of solutions Somerset Re is bringing to its business partners.”

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