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Prudential Shares Indexed Annuity Risk With Reinsurer

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A unit of Prudential Financial Inc. is turning to a reinsurer in Bermuda to help it power its indexed annuity business.

Prudential Annuities Life Assurance Corp. has agreed to share some of the risks, and rewards, associated with newly sold indexed annuity contracts with Somerset Reinsurance Ltd.

(Related: Genworth’s Life Division CEO to Leave by Year’s End)

Prudential Annuities and Somerset Re have entered into a quota share reinsurance arrangement, Somerset Re announced earlier this week. The arrangement applies to indexed annuities filed as non-variable insurance products.

Reinsurance Basics

Reinsurance is a form of insurance for insurance companies.

The insurer that writes the business, or “direct writer,” can use a quota share reinsurance “treaty,” or contract, to pass a fixed percentage of the premiums and benefits costs associated with new business to a reinsurer.

A direct writer could, for example, use a quota share reinsurance treaty to keep 70% of the premiums and losses tied to new business flow and send 30% to a reinsurer.

Prudential Annuities and Somerset Re have not yet said how they’ll be splitting indexed annuity premiums and risk.

Prudential and other big life and annuity issuers often have many different reinsurance arrangements. Prudential gives some information about the arrangements in its annual and quarterly financial filings. It notes in its latest quarterly filing that, at one point, it was sharing half of the risk associated with a living benefits guarantee product through a quota share reinsurance treaty.

The Players

Prudential Annuities is a Shelton, Connecticut-based arm of Prudential, which is based in Newark, New Jersey. It holds the life insurance and annuity operations that Prudential acquired from Skandia Insurance Company Ltd. of Stockholm in 2003.

Somerset Re is a Pembroke, Bermuda-based reinsurer that was founded in 2013, as Weisshorn Re, by a team with close ties to Weiss Multi-Strategy Advisers LLC of New York.

Patrick Kelleher, the former head of the life division at Genworth Financial Inc., has been Somerset Re’s chief executive officer since 2014.

The company announced in 2016 that it had raised $375 million in capital from a group that included Hannover Re and Atlas Merchant Capital LLC, along with George Weiss, the chairman and CEO of Weiss Multi-Strategy Advisers.

Hannover Re is a large German reinsurer.

Atlas Merchant Capital is a hedge fund with a list of portfolio companies that has included Talcott Resolution and Ascensus as well as Somerset Re.

Somerset Re has posted a detailed 2018 Bermuda Monetary Authority financial report for 2018 on its website.

George Weiss serves on Somerset Re’s board, according to the report.

Somerset Re reported about $21 million in total home office expenses. It had about $162 million in fixed-income assets, $975 million in funds held assets, and $391 million in a Weiss-advised multi-strategy fund.

A.M. Best, a rating agency, concluded in a commentary in February that Somerset Re had a “very strong capital profile” with a “limited amount of business generated by the company to date, at the early stage of its business plan.”

Kroll Bond Rating Agency said in August that Somerset Re has a “strong level of risk-adjusted capital, robust and disciplined approach to risk-focused pricing,seasoned management team,and beneficial strategic relationships.”

Kroll said the Weiss multi-strategy investment fund has had a good track record over the past 20 years.

— Read Reinsurer Hungry for Big Life and Annuity Blocks, on ThinkAdvisor.

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