UK insurer Aviva has transferred the longevity and asset risks attached to a portion of its pension insurance business to Prudential Financial (PFI) of the US.

The deal marks the first time the US financial services giant has taken on both types of risk from a pension insurer, a process known as funded reinsurance.

Aviva declined to state the value of the transaction, which completed in June, or how many members’ benefits were secured.

Funded reinsurance involves the reinsurer – in this case Prudential Financial – agreeing to reimburse the insurer (Aviva) for the monthly benefit payments it has taken on from defined benefit (DB) schemes. Rohit Mathur, head of international transactions at PFI, said this provided “an additional layer of security, mirroring the insurer’s promise to pay all benefits for as long as the people live”.

Prudential’s previous reinsurance transactions with UK companies have focused only on protecting insurers against the risk that retired DB members live longer than expected – they did not, as with this deal, also take on the asset risk associated with pension and annuity liabilities.

Prudential has been a key reinsurer for the UK DB derisking market in recent years, securing liabilities for companies including Rothesay Life and Pension Insurance Corporation.

John Smitherman-Cairns, interim managing director of annuities at Aviva, said: “This innovative funded reinsurance transaction further strengthens the relationship between Aviva and PFI and is the result of a fantastic collaborative effort between both parties.”

Amy Kessler, head of the newly rebranded International Reinsurance arm of Prudential Financial, said: “Since early 2019, we have witnessed an increase in market activity and volumes in the UK market leading to a greater need for funded reinsurance solutions.

“Our entry into the funded reinsurance business is a natural place for us to expand. The presence of reinsurers like us, with both longevity capacity and asset management capabilities, will allow the UK market to continue to grow in new ways in the years to come.”

PFI’s asset management arm, PGIM, is one of the largest in the world, with nearly €1.4trn in assets as of the end of 2019, according to IPE’s latest Top 500 Asset Managers survey.

In a statement announcing the transaction, PFI said more pension insurers were exploring funded reinsurance to help cope with the huge derisking demand.

In January, US-based insurance company Athene said it had completed a funded reinsurance transaction with an unnamed UK insurer, worth approximately $800m (€684m).

Despite the challenges of the Covid-19 pandemic, 2020 has seen several large insurance transactions, including financial services company LV=’s £800m (€887m) buy-in in July, and brickmaker Ibstock’s £340m buyout earlier this month.

Last year saw £40bn of pension insurance business written, according to Aon, and demand is expected to grow as the UK’s DB sector reaches maturity. Consultancy LCP has forecast the UK’s bulk annuity market to reach £25bn in 2020.