(Bloomberg) — Prudential Financial Inc., the No. 2 U.S. life insurer, has taken on the risk that Rothesay Life Ltd. will have higher-than-projected costs on $3 billion of U.K. pensions.
Prudential will incur expenses in the latest deal if retirees live longer than expected, boosting payouts on $1.7 billion of retirement obligations, the company said in a statement today. The Newark, New Jersey-based insurer had already made three similar deals with Rothesay, the U.K. insurer run by former Goldman Sachs Group Inc. managing director Addy Loudiadis.
Prudential is betting its expertise at figuring out lifespans will help it profit from the sale. Rothesay benefits by capping its future obligations.
"Rothesay is buying some certainty from us," Phil Waldeck, senior vice president of pensions and structured solutions at Prudential Retirement, said by phone.
The Rothesay deal is Prudential's latest as the insurer builds a business taking on pension risks for other firms. BT Group Plc, the former U.K. phone monopoly, obtained longevity insurance from Prudential on about 16 billion pounds ($27 billion) of retiree liabilities. BT transfered the longevity risk to an affiliated insurer, which then purchased the coverage from Prudential, according to a statement last month.
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