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Portfolio > Portfolio Construction

Prudential Financial takes risk on $2.2 billion L&G portfolio

By Laura Davison

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(Bloomberg) — Prudential Financial Inc. agreed to provide reinsurance on an annuity portfolio at Legal & General Group Plc, guarding the U.K. company against the risk that pension beneficiaries live longer than expected.

The contract covers about 1.35 billion pounds ($2.2 billion) of bulk annuities, the companies said today in a statement that didn’t disclose terms. London-based L&G had about 24.6 billion pounds in bulk annuity assets as of June 30, according to the statement.

Prudential, the second-largest U.S. life insurer, has assumed pension obligations from firms including General Motors Co., Verizon Communications Inc. and Bristol-Myers Squibb Co. The Newark, New Jersey-based company has also taken on risks tied to retiree liabilities at BT Group Plc, the former U.K. phone monopoly.

The L&G deal “underscores our proven ability to tailor reinsurance solutions for the largest and most sophisticated pension insurers in the world,” Bill McCloskey, a vice president of longevity insurance for Prudential, said in the statement.

Prudential has said it’s well equipped to take on longevity risks because traditional life insurance is more profitable when populations live longer, providing a natural hedge. The company, with more than $1.1 trillion of assets under management, isn’t affiliated with London-based Prudential Plc.

Today’s deal involves the Prudential Retirement Insurance and Annuity Co. unit.

L&G has increased its focus on bulk annuities after U.K. government reforms to Britain’s pension system led to a slump in sales to individual retirees. Sales of annuities to company pension plans are at a record this year boosted by L&G’s 3 billion-pound deal with ICI Pension Fund in March.

–With assistance from Sarah Jones in London and Zachary Tracer in New York.

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