Prudential Picks Somerset Re to Reinsure $12.5B in Life Policies

What You Need to Know

Prudential units wrote the policies before 2015.
Some clients could have used the policies in financial planning arrangements, not just for death benefit protection.
Prudential said it will continue to manage distributor and policyholder relations for the policies.

Prudential Financial plans to share some of the responsibility for a big block of life insurance policies with a reinsurer.

The company announced Monday that it has arranged for Somerset Re to reinsure guaranteed universal life policies backed by $12.5 billion in reserves.

Prudential plans to continue to service the block, manage relationships with the reinsurers that protect the block against mortality risk, and handle communications with the policy distributors and owners.

“Prudential does not expect there to be any direct impact to employee headcount as a result of the transaction,” the company said.

Clients could have used the kinds of cash-value policies being reinsured for retirement income planning, long-term care planning or other financial planning efforts as well as for death benefits.

What It Means

Prudential continues to have ultimate responsibility for the policies that were reinsured, but it can keep details about a reinsured block of business, including the effects of investment market fluctuations on the value of product guarantees, out of its results.

The Somerset Re deal “marks another significant milestone in our efforts to reduce market sensitivity and increase capital flexibility,” Charles Lowrey, the CEO of the Newark, New Jersey-based insurer, said.

For clients, the long-term effects of Prudential’s efforts to reduce market sensitivity are unclear.

Lowrey said Prudential continues to be “committed to offering a comprehensive and attractive portfolio of life insurance solutions.”

The Deal

The transaction is subject to approval by the Bermuda Monetary Authority and other regulators.

Prudential and Somerset Re hope to close by the end of the year.

Prudential estimates that shutting down financing facilities associated with the block will cost about $65 million and that completing the deal will free about $425 million of the capital now supporting the block.