Prudential Financial has entered into an agreement to reinsure a portion of its guaranteed universal life block with Wilton Re, expecting to generate approximately $350 million in post-closing proceeds.
The agreement involves Wilton Re reinsuring about $11 billion of reserves associated with Prudential's guaranteed universal life policies, issued by Pruco Life Insurance Company Arizona (PLAZ) and Pruco Life Insurance Company of New Jersey (PLNJ).
These policies, written through 2019, represent around 40% of Prudential's remaining guaranteed universal life statutory reserves.
Prudential will continue servicing the block of policies included in the transaction, maintaining its existing relationships with contract holders and distribution partners. The company noted that it does not foresee any direct impact on employee headcount because of this deal.
The reinsurance transaction is structured on an indemnity coinsurance basis and includes significant protections, such as overcollateralization and investment guidelines. PGIM Portfolio Advisory, a multi-asset solutions affiliate of PGIM, will manage the assets supporting the block, along with additional assets received from Wilton Re.
Prudential also has the option to reinsure 30% of the block from Wilton Re on similar terms for two years following the transaction's closing.
The transaction is subject to regulatory approvals. Upon closing, Prudential expects a decrease in total after-tax annual adjusted operating income of approximately $35 million, with the earnings impact varying based on market conditions and finalization at closing.
Additionally, the company anticipates one-time expenses of about $25 million in the closing quarter, mainly due to the extinguishment of certain financing facilities and other closing costs.
This transaction follows a similar reinsurance deal completed by Prudential in March, which involved reinsuring a $12.5 billion guaranteed universal life block with Somerset Re. Once this latest deal is closed, Prudential will have reduced its exposure to guaranteed universal life by approximately 60%.
Wells Fargo served as exclusive financial advisor, and Debevoise & Plimpton LLP provided legal counsel to Prudential for the transaction. Wilton Re was represented by Kirkland & Ellis LLP.
Charles Lowrey (pictured above), chairman and CEO of Prudential Financial, stated that the transaction aligns with the company's strategic goal of becoming a higher growth and more capital-efficient business.
Wilton Re CEO Dmitri Ponomarev also noted that the agreement reflects Wilton Re’s strategy to address complex in-force life insurance and annuity needs for its clients.
Ponomarev also stated that PGIM, Prudential’s asset management arm, will be welcomed as part of Wilton Re’s asset managers under this agreement.
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