Prudential Assumes Longevity Risk of Rothesay Life

+18.03%
Upside
102
Market
120
Trefis
PRU: Prudential Financial logo
PRU
Prudential Financial

Prudential Financial (NYSE:PRU) recently assumed the longevity risk of Rothesay Life, a wholly-owned subsidiary of Goldman Sachs (NYSE:GS) under a reinsurance contract that will cover pension liability values of approximately $665 million. [1] The reinsurance contract secures the retirement benefits of almost 20,000 members of the Uniq Plc Pension Scheme, who are insured by Rothesay Life. Last year, Prudential was also chosen by Deutsche Bank (NYSE:DB) to assume longevity risk of the company and its client, the Rolls-Royce Pension Fund. Prudential is one of the largest financial services organization in world and competes with MetLife (NYSE:MET), AIG (NYSE:AIG), Hartford Financial (NYSE:HIG) and Manulife (NYSE:MFC).

Relevant Articles
  1. Is Prudential Financial Stock Fairly Priced?
  2. Is Prudential Financial Stock Fairly Priced?
  3. Prudential Financial Stock Has Limited Upside
  4. Prudential Financial Stock To Top The Estimates In Q2?
  5. Is Prudential Financial Stock Undervalued?
  6. Prudential Financial Is Likely To Beat Earnings In Q1, But Is The Stock A Good Bet?

See our full analysis of Prudential here

Longevity risk is faced by pension or annuity providers when customers live longer than expected. This exposes providers to higher than expected costs. According to Swiss Re, underestimating life expectancy by just one year can push a pension fund’s liabilities up by 5%, so getting it right is a major challenge for pension funds and annuity providers. [2] Advancement in medical technology and healthier lifestyles have led to an increase in average lifespan and this trend has made insurance risk transfer very important for restoring capital flexibility for businesses.

On the other hand, re-insurers such as Prudential is happy assume longevity risks as it helps it counter the mortality risk due to its presence in the life insurance market.

We have a price estimate of $54.02 on Prudential’s stock, about 10% below the current market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

Notes:
  1. Prudential Retirement reinsures retirement benefits through transaction with Rothesay Life, Feb 14, 2012, News Releases []
  2. New report sets out strategies to address longevity risk in Canada, Swiss Re []