Somerset Re agrees to reinsure $12.5bn block of Prudential life policies

Bermuda-based Somerset Re will reinsure $12.5 billion worth of reserves backing Prudential Financial’s guaranteed life policies issued by Prudential subsidiaries.

The agreement will result in approximately $450 million of proceeds to Prudential.

Prudential said: “Under the terms of the agreement, Somerset Re will reinsure approximately $12.5 billion of reserves backing Prudential’s guaranteed universal life policies issued by Pruco Life Insurance Company and Pruco Life Insurance Company of New Jersey.”

The transaction, covering policies written prior to 2015, represents approximately one-third of Prudential’s total guaranteed universal life statutory reserves.

“This transaction marks another significant milestone in our efforts to reduce market sensitivity and increase capital flexibility,” said Charles Lowrey, chairman and CEO of Prudential Financial. “Looking ahead, we remain committed to offering a comprehensive and attractive portfolio of life insurance solutions to meet the diverse needs of our customers.”

“Somerset Re is pleased to expand its risk management support for Prudential Financial in this transaction,” said Jeffrey Burt (pictured), chairman and CEO of Somerset Re Group. “This represents our third reinsurance agreement with Prudential, demonstrating the breadth of solutions Somerset Re is bringing to its business partners.”

Aquarian Holdings bought a controlling interest in Somerset Re in January, 2023.

The agreement does not result in any changes to contracts included in the transaction. Prudential will continue to service the block and maintain its existing relationships with contract holders and distribution partners.2 Prudential does not expect there to be any direct impact to employee head count as a result of the transaction.

The reinsurance transaction is structured on a modified coinsurance basis and contains significant structural protections, including overcollateralization and investment guidelines. In connection with the transaction, PGIM will retain an investment mandate related to a portion of the assets supporting the block.

The transaction is expected to close in the fourth quarter of 2023, subject to regulatory approval, including the Bermuda Monetary Authority. Upon closing, Prudential anticipates an increase in after-tax annual adjusted operating income of approximately $55 million, plus amortization of the cost or benefit of reinsurance, which is currently expected to be accretive to earnings, but will be finalized at closing.3

Wells Fargo Securities, LLC served as exclusive financial advisor, and Willkie Farr & Gallagher LLP served as legal counsel to Prudential for the transaction.

Mayer Brown LLP served as legal counsel to Somerset Re for the transaction, and RBC Capital Markets advised Somerset Re.