-A collaborative effort between Prudential Retirement, a unit of Prudential Financial, Inc.and Pension Insurance Corporation (PIC) has created an innovative new approach for expediting longevity reinsurance transactions for smaller pension buy-ins and buy-outs. This new approach combines an advance commitment of capital, known pricing and the bundling of multiple transactions into a single closing to enable PIC to more nimbly and efficiently address the risk transfer needs of small pensions and their retirees.


Launched, tested and proven effective by Prudential and PIC throughout 2017, this flow reinsurance structure has shown itself to be an effective tool for increasing the primary insurer’s capital efficiency and reducing the administrative burden for both the primary insurer and the reinsurer.


With new models and predictive analytics, this systematic approach helps streamline the reinsurance transaction process for PIC’s smaller pension buy-in and buy-out transactions that meet pre-agreed criteria. These blocks will be reinsured by Prudential at the model-determined price.


“This approach is a win for PIC, a win for Prudential, and a win for the market,” said Amy Kessler, Prudential’s head of longevity reinsurance. “It is a win for the market because it supports the continued growth of the small-transaction segment very effectively. It is a win for PIC because it has reinsurance capital lined up at a known price to support its fantastic work with smaller schemes. Finally, it is a win for Prudential because it helps us to efficiently reinsure a diverse and important segment of the U.K. market.”


Historically, 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. Prudential and PIC, having worked together for years on multiple risk transfer transactions, started collaborating on this project almost two years ago as part of a joint effort to find better, more efficient ways to serve these smaller pension schemes.


The approach developed by Prudential and PIC creates economies of scale, execution efficiency and greater flexibility, enabling both companies to better meet the needs of this rapidly growing market.


Khurram Khan of Pension Insurance Corporation said: “This evolution in longevity risk hedging brings with it greater automation and certainty to the reinsurance of U.K. bulk annuities. PIC continues to develop other such products in conjunction with enterprising reinsurers such as Prudential.”


Bill McCloskey, Prudential’s head of transactions for international longevity reinsurance, said: “This new process leverages Prudential’s and PIC’s innovative cultures and execution capabilities. We have enjoyed collaborating with PIC to help find better ways to address their needs in managing pension-related longevity risk.”