UK - Prudential Retirement has completed its first longevity reinsurance deal with Rothesay Life in an agreement it said would increase the security of pension promises.

Prudential will act as reinsurer for longevity risk worth £100m (€113m) incurred by the Goldman Sachs subsidiary.

Amy Kessler, senior vice-president and head of Prudential's longevity reinsurance effort, argued that plan sponsors often faced "significant uncertainty" due to their exposure to pension risk, adding that the company's role as a reinsurer of longevity risk would help increase the security of pension promises.

"Providing longevity reinsurance for insurers in the UK is one more example of how we're helping to create retirement security through innovative solutions and strong partnerships," she said. "This transaction is another step in further developing our pension risk transfer business."

Addy Loudiadis, chief executive at Rothesay Life, said she hoped the transaction would mark the beginning of a long relationship between the two companies.

Meanwhile, Xafinity Consulting said bidders for companies must strive to understand the complexities of the pension scheme attached to the company they are looking to acquire.

Hugh Creasy, director at the consultancy, said comparing May 2010 and current figures for pension scheme deficits would not give a true indication of the volatility facing pension scheme investments.

"Whether we like it or not, the investments chosen for corporate pension schemes will produce large swings in the deficit over short periods," he said.

He added that, in light of suggestions that the Takeover Panel - which oversees all merger and acquisition activity in the UK - will ask bidders to clarify their intentions regarding a pension scheme, bidders would be forced to examine a scheme in more detail.

Creasy warned that those lacking a proper understanding of the dynamics of pension schemes would be left exposed to the unexpected shifts in assets that could derail the bid.

"What we can expect to see is a much greater focus from acquiring companies on understanding the 'what ifs' for the pension scheme and actively managing those relationships," he said.

"This may bring extra time and cost to the planning stage, but the consequences of not doing so are becoming increasingly unpalatable."
 

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