International Reinsurance
Prudential is a global leader in reinsuring pension and longevity risk for insurers and pension fund captives. Our solutions help secure the long-term benefit obligations of our clients.
Solutions for pension funds
(captive and intermediated structures)
- Longevity risk transfer (LRT) Enables pension funds to better manage assets against known liabilities and create certainty around their future obligations. If pension scheme participants and their dependents live longer than expected, we pay the incremental benefits for as long as the covered persons live.
Solutions for insurers
Insurers in the U.K. and elsewhere who offer individual annuities and execute pension buy-outs and buy-ins with pension funds use reinsurance to create certainty around the future liabilities they have assumed.
We actively quote in the U.K., Canadian, and Dutch markets, and offer a wide variety of solutions that help our clients meet their unique risk and capital management needs.
- Longevity reinsurance of buy-ins and buy-outs
- Longevity reinsurance of personal pensions
- Flow reinsurance
The longevity reinsurance market for smaller pension buy-ins and buy-outs has been difficult to serve because of the complexity and administrative burden of pricing, and executing contracts for each small transaction. Our innovative flow reinsurance structure reduces this complexity and expedites these transactions by combining an advance commitment of capital, known pricing, and the bundling of multiple transactions into a single closing. The greater automation, flexibility, and execution certainty our flow reinsurance provides can support the continued growth of the small-transaction segment of the market in an efficient manner.
- Funded reinsurance
Funded reinsurance allows an insurer to transfer both asset risk and longevity risk associated with pension and annuity liabilities. Increasingly, insurers are seeking strong reinsurance partners to assume the full asset and longevity risk of the bulk annuity contracts they write in order to bring additional capital and asset management expertise to the market. As a top-15 global asset manager1, Prudential is uniquely positioned to manage these risks, making funded reinsurance a natural extension of our capabilities in support of this growing market.
Footnote
1 PGIM, the global asset management business of Prudential Financial, Inc., manages assets for our insurance and reinsurance contracts, and ranks as the 11th largest institutional asset manager in the world. Source: Pensions & Investments’ Top Money Managers list, 6/12/2023; based on Prudential Financial total worldwide assets under management as of 12/31/2022.
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How longevity and funded reinsurance work
The flow of risk in both longevity and funded reinsurance is similar, with the primary or captive insurer assuming the risk(s), and then reinsuring some or all of it with the reinsurer.
The diagram shows the flow of capital in a PRT buy-out. The pension scheme pays a single premium to either a local or captive primary insurer. The primary insurer may then reinsure their risks using either longevity reinsurance or funded reinsurance. If using Longevity reinsurance, lifespan expectations are fixed at the inception of the contract. However, because real lifespans may vary from the expectations, the benefit payments can fluctuate. The primary insurer pays a premium and fees flow to the reinsurer to cover longevity risk, and the actual benefits are paid by the reinsurer to the primary insurer. If using Funded Reinsurance, a single premium flows from the primary insurer to the reinsurer, which covers both investment risk and longevity risk, and fixed periodic payments are paid by the reinsurer to the primary insurer. In either reinsurance arrangement, the primary insurer makes monthly payments to the beneficiaries, or the pension scheme participants.
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The role of longevity and funded reinsurance
Managing a pension plan, or long-term group annuity, is complicated. Employers sponsoring pension plans and insurers often face challenges in maintaining, managing, and fulfilling such plans.
Pension risk transfer (PRT), or a bulk/group annuity arrangement, helps employers honor their promises to their participants, with reinsurance playing an integral role in helping them better manage their risks to keep those promises, no matter how long the participant lives.
Challenge: Longevity Risk
Why?
Longer lifespans, due to increasing quality of life and advances in medical care, mean pension plans must pay more benefits for longer periods of time—potentially increasing costs and making it harder to maintain funding levels.
How PRT Can Help
A primary insurer takes over this risk through a PRT contract. In a buy-in, they guarantee to reimburse a subset of plan outflows. With a buy-out, they fully take over an agreed-upon portion of the plan, making guaranteed payments over the lifetime of the last beneficiary.
How Reinsurance Can Help
Longevity and funded reinsurance pass this risk over to a reinsurer who reimburses the cash outflows the primary insurer is responsible for. This guarantee frees up assets for the primary insurer, allowing them to strategically deploy it.
Challenge: Investment Risk
Why?
Asset performance, interest rates, and market volatility can all impact a pension plan's funded status.
How PRT Can Help
A local insurer takes this risk off a pension plan's balance sheet, either by guaranteeing assets through a buy-in, or managing assets through a buy-out. This protects the employer from market volatility.
How Reinsurance Can Help
In a funded reinsurance arrangement, investment risk is passed to the reinsurer, along with longevity risk.
Challenge: Administration
Why?
Running a pension plan can be expensive and complicated, with substantial regulatory requirements and complex data ecosystems.
How PRT Can Help
A pension buy-out entirely shifts a pre-selected portion of a pension plan to an insurance carrier. The insurer takes over the responsibilities of running the plan, including administration.
How Reinsurance Can Help
Reinsurance has no impact on the plan's direct administration with participants.
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Thought Leadership
For compliance use only: 1086102-00001-00
For compliance use only: 1074849-00002-00
Rohit Mathur
Vice President and Head of International Reinsurance
rohit.mathur@prudential.com opens in new window
Disclaimer
Reinsurance products are issued by PICA. Neither PICA nor its parent company PFI, headquartered in the United States, is affiliated in any manner with Prudential plc, incorporated in the United Kingdom, or with Prudential Assurance Company, a subsidiary of M&G plc, incorporated in the United Kingdom. PICA is solely responsible for its financial condition and contractual obligations. PICA is not authorized or regulated by the U.K. Prudential Regulation Authority or regulated by the Financial Conduct Authority, nor does it offer insurance or reinsurance in the United Kingdom. PICA is not authorized or regulated by the Office of Superintendent of Financial Institutions for Canada or by the Financial Services Commission of Ontario. PICA is not authorized or regulated by supervisory authorities in the European Economic Area (EEA). PICA provides insurance products for U.S. pension plans in the United States and off-shore U.K. reinsurance to companies that have acquired U.K. pension risk through transactions with U.K. plan sponsors.
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