United States, other countries following U.K. lead in transferring plan risk to insurers
NEWARK, N.J., October 26, 2015 - New research released today from PFI highlights how plan sponsors around the globe are re-thinking their pension risk. Prudential Retirement is a business unit of Prudential Financial, Inc. (PFI) (NYSE:PRU). PFI is headquartered in the United States and is not affiliated with Prudential UK headquartered in the United Kingdom.
The paper, “The Pension Risk Transfer Market at $260 Billion: Innovation, Globalization and Growth,” notes that more than $260 billion in pension liabilities have been transferred since 2007 and how recent transaction activity by global industry icons are forcing plan sponsors to re-think pension risk now. According to the white paper, by employing effective de-risking strategies, plan sponsors and fiduciaries can:
• Minimize the risk around plan contributions
• Improve consistency of financial results and realize corporate finance benefits
• Allow greater focus on the firm’s core business
• Enhance retirement security for employees and retirees
“Plan sponsors and fiduciaries who proactively manage or transfer pension risk can fund their pension obligations with certainty and gain a considerable advantage over those who don’t,” says William McCloskey, vice president of Longevity Reinsurance within Prudential Retirement’s Pension Risk Transfer business.
A number of risk transfer solutions exist, each of which can help plan sponsors:
• Solidify market leadership
• Achieve more consistent financial results
• Avoid potential cash calls on the firm
• Maximize strategic flexibility
“Managing pension risk sets companies apart from their peers,” McCloskey said. “In 2012, when jumbo pension risk transfer agreements first arrived in the U.S. market, the question on most plan sponsors’ minds was whether to reduce pension risk. Today, with customized solutions readily available, the question is, which path will they take to a lower-risk future?”
With regard to growth in the U.S. market, there have been $67 billion of pension risk transfer transactions since 2007, according to Amy Kessler, senior vice president and head of Longevity Risk Transfer within Prudential Retirement’s Pension Risk Transfer business. In the U.K., she added, there have been nearly $180 billion in transactions completed over the same time period, and more than $16 billion in activity in Canada.
Kessler notes the U.K. leads the world in innovation as well with a broad range of pension de-risking products and approaches that allow pension funds to customize their de-risking path. “There is a strong trend toward the globalization of the annuity and longevity reinsurance market that is being driven by the de-risking of corporate pension funds in many countries. U.K. advances in pension risk transfer are being emulated in the U.S. and Canada and are rapidly spreading to countries with significant defined benefit pension plans.”
The U.K. is a leader in the longevity risk transfer market segment, where pension funds and insurers alike are tapping into the ample capacity in the longevity reinsurance market. This market continues to grow because the reinsurers are motivated first and foremost by the goal of balancing mortality and longevity risks within the reinsurer and diversifying risks across many industries, regions and socio-economic groups, according to Kessler. “We expect to see this trend continue to grow because this is a sensible profitable business for life companies to write for all the right economic reasons,” she concluded.
PFI’s Pension Risk Transfer team supports nearly 5,000 clients and 1.5 million people.
PFI delivers retirement plan solutions for public, private, and nonprofit organizations. Services include defined contribution, defined benefit and non-qualified deferred compensation record keeping, administrative services, investment management, comprehensive employee education and communications, and trustee services, as well as a variety of products and strategies, including institutional investment and income products, pension risk transfer solutions and structured settlement services. With over 85 years of retirement experience, PFI helps meet the needs of 4.0 million participants and annuitants. PFI has $372.6 billion in retirement account values as of June 30, 2015.
Retirement products and services are provided by Prudential Retirement Insurance and Annuity Company (PRIAC), Hartford, CT, or The Prudential Insurance Company of America (PICA), Newark, NJ. PRIAC and PICA are wholly owned subsidiaries of PFI, headquartered in the United States and not affiliated with Prudential plc of the United Kingdom. Neither PICA nor PRIAC is licensed or regulated by the U.K. Prudential Regulation Authority as an insurer or regulated by the Financial Conduct Authority, nor does either offer insurance or reinsurance in the United Kingdom. PICA and PRIAC do provide off-shore reinsurance to companies that have acquired U.K. pension risks through transactions with U.K. plan sponsors.
PFI (NYSE: PRU), a financial services leader, has operations in the United States, Asia, Europe, and Latin America. PFI’s diverse and talented employees are committed to helping individual and institutional customers grow and protect their wealth through a variety of products and services, including life insurance, annuities, retirement-related services, mutual funds and investment management. In the U.S., PFI’s iconic Rock symbol has stood for strength, stability, expertise and innovation for more than a century. For more information, please visit http://www.news.prudential.com/