Prudential and Aviva strike first longevity reinsurance deal

Aviva Life and Pensions UK has transferred the longevity risk associated with £1bn (€1.1bn) of pension liabilities to the Prudential Insurance Company of America.

Prudential is a seasoned insurer of longevity risks but this is its first deal with Aviva’s UK life and pensions arm. Prudential Retirement, part of US-based Prudential Financial, is the Prudential unit that entered into the agreement with Aviva.

In a statement announcing the transaction, the companies spoke of “a new reinsurance partnership”.

William McCloskey, head of international transactions for longevity reinsurance at Prudential, said Aviva had become a “premier” pension insurance provider over the last several years.

The deal is the latest to hit a buoyant de-risking market in the UK.

“Market activity in 2018 is building toward a very strong second half,” said Amy Kessler, head of longevity risk transfer at Prudential.

“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.”

Enhanced capacity of insurers is also said to be playing a role.

Aviva and Prudential noted that their transaction followed at least 10 other deals for more than $1bn (€862m) during the last 12 months.

“Collectively,” they said in a statement, “these UK longevity reinsurance and longevity swap agreements signify a noticeable market surge, driven by pension schemes eager to capitalise on their improved funded status, and take risk off the table.”

According to Aon , the underlying bulk annuity market experienced its busiest first half-year ever between January and June this year, and 2018 as a whole was shaping up to become a record year.

Last month Hymans Robertson reported that the combined value of buy-ins and buyouts so far this year had exceeded the value for the whole year in each year up until 2013.

Sizeable recent de-risking deals include a £1.3bn pensioner buy-in for Siemens, a £850m buyout for PA Consulting, and a £2bn longevity swap for National Grid.