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Prudential Agrees to a $3.55B Deal

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What You Need to Know

  • Prudential announced plans to sell its retirement recordkeeping group to Empower Retirement, to close by March 2022.
  • Prudential will continue to offer annuities, group annuities and institutional money management services.
  • The announcement comes on the heels of AIG's agreement to sell a 9.9% stake in its life unit to Blackstone.

Prudential Financial hopes to raise $3.55 billion by selling its retirement plan recordkeeping administration operations to Empower Retirement.

An arm of Great-West Lifeco, Empower Retirement is based in Greenwood Village, Colorado. In the sale, it would get Prudential’s defined contribution plan, defined benefit plan, non-qualified and rollover IRA businesses, along with related separate account investment products and platforms.

Prudential would keep its individual annuity operations.

The Newark, New Jersey-based company says its Prudential Retirement business also would continue to offer international reinsurance, structured settlements, institutional stable value wrap products, and the group annuities and services used in pension risk transfer arrangements.

Prudential’s PGIM unit would still manage money for retirement plans and other customers.

Prudential and Empower hope to close on the deal by March 31, 2022.

The Background

Publicly traded U.S. insurers are facing very low interest rates on their bond portfolios and new accounting rules that increase the volatility of quarterly earnings reports. Many of those insurers have been splitting off or reducing the size of the businesses affected the most by the low rates and the new accounting rules.

Prudential’s announcement comes on the heels of American International Group’s move to sell a 9.9% stake in its AIG Life & Retirement business to The Blackstone Group for $2.2 billion. AIG said it was making that move to increase its financial flexibility as it prepares to separate AIG Life & Retirement from the rest of AIG.

Principal Financial Group said in June that it would reduce risk by dropping its retail fixed annuity and retail life products, while keeping life and annuity lines aimed at employers and corporate executives.

Prudential is preparing to release its earnings for the second quarter Aug. 3.

Prudential executives said in May, when the company announced earnings for the first quarter, that it has been working on deals that could help it shed annuity guarantee risk.

The Empower deal would help Prudential return $11 billion to shareholders through 2023, up from a total of $10.5 billion announced in May, Prudential said. The deal also would help Prudential reduce financial leverage and increase its financial flexibility, the company said.

Charles Lowrey, Prudential’s CEO, said in a statement that Empower has the scale and expertise to ensure the long-term success of the retirement plan administration business.

For Prudential, the deal is part of “our strategy to become a higher growth, less market sensitive, more nimble business,” Lowrey said.

The Deal

Empower has been administering retirement plans with about 12.6 million participants and $1.1 trillion assets, or roughly $90,000 in assets per participants.

Prudential Retirement’s recordkeeping and administration business has been running plans with about 4 million participants and $314 billion in assets, or about $80,000 in assets per participant.

Empower would get about $2.1 billion in capital in connection with the deal, according to Prudential and Empower.

Prudential’s recordkeeping unit has about 1,800 employees.

Empower and Prudential said completing the deal could lead to “run-rate expense synergies” with a value of about $180 million per year after about 24 months.

(Photo: Emile Wamsteker/Getty via Bloomberg Images)