Pensions - Articles - Aviva and Prudential reach longevity reinsurance agreement

Prudential Retirement, a unit of Prudential Financial, Inc. and Aviva Life and Pensions U.K. Ltd. have struck their first longevity reinsurance transaction, establishing a new reinsurance partnership between these two market leaders. 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 U.K., where pension insurers are increasingly seeking to manage their risk and capital with longevity reinsurance arrangements. 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 U.K. schemes, many of which are approaching full funding.
 “We are delighted to establish a new relationship with Aviva,” said William McCloskey, Prudential’s head of international transactions for longevity reinsurance. “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 U.K. pension risk transfer market. We are thrilled to collaborate and partner with Aviva on such an important agreement.”
 Tom Ground, managing director of defined benefit solutions at Aviva, said: “We’re delighted to have entered into this transaction with PICA. As one of the leading reinsurers, it has the credentials and scale to support our own growth ambitions as we continue to increase deal volumes in the U.K. We hope this deal is just the start of a longer-term relationship.”
 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 favorable environment by locking in gains and transferring risk, knowing that such advantageous markets are always fleeting.”
 The agreement follows at least 10 others in the market during the last 12 months that have exceeded $1 billion in size. Collectively, these U.K. 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.
 Funding levels of U.K. 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).
 Prudential is a global leader in the pension reinsurance market with more than $50 billion in international reinsurance transactions since 2011, including the largest longevity risk transfer transaction on record, a $27.7 billion transaction involving the BT Pension Scheme.

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