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Prudential to Shed $31B in Individual Annuity Account Value

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What You Need to Know

  • Fortitude Re would be buying Prudential's equity interests in Prudential Annuities Life Assurance Corp.
  • The contracts are variable annuities, with guaranteed living benefits, that were issued before 2011.
  • Pru says the deal will have no effect on contract servicing or its employee head count.

Prudential Financial is moving ahead with efforts to reduce its exposure to individual variable annuity benefits guarantees.

The Newark, New Jersey-based company announced Wednesday that it has agreed to sell a large portion of its variable annuity business to Fortitude Re, a Bermuda-based reinsurer.

The deal involves annuities with a total of $31 billion in account value, or about 17% of Prudential’s total in-force individual annuity account value, as of June 30.

Prudential and Fortitude Re hope to complete the deal by June 30, 2022.

The Reinsurer

Fortitude Re was once part of American International Group. The Carlyle Group and T&D Holdings of Japan bought a 76.6% stake in Fortitude Re’s holding company, Fortitude Group Holdings, in June 2020.

The Deal

Prudential said it will carry out the shift by selling its stake in a subsidiary, Prudential Annuities Life Assurance Corp., to Fortitude Re, through a transaction with a value of $2.2 billion.

The transaction value includes a $1.5 billion cash payment, a release of capital to Prudential, and a tax benefit for Prudential.

Fortitude Re will get traditional individual variable annuities that come with guaranteed living benefits and written before 2011. All of the contracts were written outside New York state.

Prudential will continue to service and administer the contracts, and the deal will have no effect on Prudential’s employee head count, the company said.

Prudential said the deal could reduce its pretax annual adjusted operating income by about $290 million.

The Reasoning

Because of low interest rates and new accounting rules, large blocks of annuity business can now cause big swings in publicly traded life insurers’ reported earnings.

Many publicly traded companies have been working to reduce exposure to annuity contracts and some life insurance policies sold when interest rates were higher and the accounting rules were different.

Prudential PLC, a London-based company with no connection to Prudential Financial, announced Monday that it had completed a previously announced separation from a large U.S. annuity unit, Jackson Financial.

Charles Lowrey, Prudential’s CEO, said in a comment about the Fortitude Re arrangement, included in the deal announcement, that the agreement “represents another significant milestone in Prudential’s journey to becoming a higher growth, less market-sensitive, more nimble company.”

What Prudential Is Keeping

Prudential said it plans to keep:

  • Its interest in the FlexGuard buffered annuity contracts,
  • Recently issued Prudential Annuities Life Assurance fixed annuity contracts.
  • Recently issued Prudential Annuities Life Assurance non-variable indexed annuity contracts.

Prudential noted that it will continue to sell new FlexGuard contracts and other annuities through subsidiaries other than Prudential Annuities Life Assurance.

Andy Sullivan, Prudential’s head of U.S. businesses, said in a comment about the company’s strategy that Prudential’s U.S. individual annuities business “remains an important component of our business mix and organic growth strategy.”

“Going forward, we will be better positioned to deliver new investment strategies like FlexGuard, which continues to achieve record success, and focus on creating the next generation of protected income solutions,” Sullivan said.

(Photo: Emile Wamsteker/Getty via Bloomberg Images)