Prudential Financial-Rothesay Pensions Bet Hits $3 Billion

Aug 11, 2014 5:37 pm ET

(Updates with BT deal structure in the fifth paragraph.)

Aug. 11 (Bloomberg) -- Prudential Financial Inc., the No. 2 U.S. life insurer, has taken on the risk that Rothesay Life Ltd. will have higher-than-projected costs on $3 billion of U.K. pensions.

Prudential will incur expenses in the latest deal if retirees live longer than expected, boosting payouts on $1.7 billion of retirement obligations, the company’s said in a statement today. The Newark, New Jersey-based insurer had already made three similar deals with Rothesay, the U.K. insurer run by former Goldman Sachs Group Inc. managing director Addy Loudiadis.

Prudential is betting its expertise at figuring out lifespans will help it profit from the sale. Rothesay benefits by capping its future obligations.

“Rothesay is buying some certainty from us,” Phil Waldeck, senior vice president of pensions and structured solutions at Prudential Retirement, said by phone.

The Rothesay deal is Prudential’s latest as the insurer builds a business taking on pension risks for other firms. BT Group Plc, the former U.K. phone monopoly, obtained longevity insurance from Prudential on about 16 billion pounds ($27 billion) of retiree liabilities. BT transfered the longevity risk to an affiliated insurer, which then purchased the coverage from Prudential, according to a statement last month.

Verizon, GM

In the U.S., Prudential has taken on pension obligations from firms including Verizon Communications Inc. and General Motors Co. In those deals, Prudential manages risks tied to both lifespans and investment performance.

Visteon Corp., the car-parts supplier, agreed last month to purchase an annuity from Prudential to cover $350 million of pension obligations.

Prudential Financial Inc. competes against U.K.’s Prudential Plc, which also offers life insurance and retirement products and sells annuities in the U.S. under the Jackson National brand.

MetLife Inc., the largest U.S. life insurer, in February reached a deal to sell its bulk U.K. annuity unit to Rothesay. Prudential is conducting its U.K. pension business from the U.S., while MetLife had been operating a U.K.-regulated insurer.

Goldman Sachs had been the majority owner of Rothesay. The bank sold stakes last year to investors including Blackstone Group LP, Singapore’s sovereign wealth fund, and Massachusetts Mutual Life Insurance Co.

The latest Prudential deal is a “further example of Rothesay Life’s low risk approach to managing its business,” Tom Pearce, a managing director at the U.K. company, said in the statement.