Prudential strikes reinsurance deal with Aviva

Pension reinsurance provider Prudential Financial and Aviva Life and Pensions UK have struck their first longevity reinsurance transaction.

As part of the transaction, The Prudential Insurance Company of America (PICA) assumes the longevity risk for approximately £1 billion (nearly $1.4 billion) in pension liabilities.

This agreement comes amid surging demand for de-risking from the UK, where pension insurers are increasingly seeking to manage their risk and capital with longevity reinsurance arrangements, according to Prudential. Demand is also driven by the increasing affordability of pension risk transfer, reflecting attractive pricing and the enhanced capacity of insurers, as well as the improved finances of UK schemes, many of which are approaching full funding, the company added.

“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 UK pension risk transfer market,” said William McCloskey, Prudential’s head of international transactions for longevity reinsurance. “We are thrilled to collaborate and partner with Aviva on such an important agreement,” McCloskey added.

Amy Kessler, head of longevity risk transfer at Prudential, added: “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 favourable environment by locking in gains and transferring risk, knowing that such advantageous markets are always fleeting.”

The agreement with Aviva follows at least 10 others in the market during the last 12 months that have exceeded $1 billion in size. Collectively, these UK 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, according to the corporate statement.

Funding levels of UK pension schemes have improved markedly since the Brexit vote of 2016, boosted by fresh contributions, strong investment performance and higher gilt yields (which lower the present value of future liabilities), the company added.