Scottish Widows has reinsured the longevity risk for around £1.3bn of its bulk annuity liabilities with The Prudential Insurance Company of America (PICA).
The agreement represents the pension provider's first longevity reinsurance transaction with PICA, a division of Prudential Financial.
Commenting on the completion of the direct longevity risk transfer and reinsurance arrangement, Scottish Widows annuities and investment strategy finance director Michael Downie, said PICA's "financial strength and long-term commitment to the market was a key consideration for Scottish Widows when selecting a counterparty".
Prudential Financial head of longevity reinsurance Amy Kessler added: "The insurer and reinsurer market continues to expand and evolve, and we expect 2018 to continue recent growth trends as managing risk capital becomes increasingly impactful."
Since 2011, Prudential Financial has transacted more than $45bn (£32bn) in international reinsurance including the £16bn transaction of the BT Pension Scheme in 2014.
Commenting on the deal, Mercer partner and head of defined benefit (DB) solutions development Alan Baker explained: "Scottish Widows was the only UK bulk annuity provider that had not reinsured its longevity risk. This transaction brings them in line with the rest of the market and no doubt reflects the capital pressures that Solvency II places on insurers holding longevity risk.
Baker added: "It also reflects the increasing scale and success of Widows bulk annuity book and may well be part of positioning themselves for further growth.""
This year, consultants are predicting the longevity market to exceed £10bn in 2018. This combined with bulk annuities, back-book deals and the expected transfer of Prudential's £13bn annuities, could see insurers looking at as much as £30bn in total transactions according to Lane Clark & Peacock (LCP).
LCP partner Clive Wellsteed added: "The strategy followed Scottish Widows since they entered the bulk annuity market has been to consider reinsurance tactically and not to require it as a condition of transacting a buy-in or buyout. This reinsurance agreement with Prudential Financial is consistent with that strategy and will mean Scottish Widows can transact reinsurance more efficiently in the future when they wish to do so."
"The reinsurers are set for a busy 2018, with demand from insurers, such as Scottish Widows, to reinsure the longevity risk from the buy-in and buyouts they have written, plus demand from pension schemes through longevity swaps. In addition, the insurers themselves are being kept busy with buy-ins and buy-outs, as well as insurance back-book transactions."
Aviva Life & Pensions has concluded an £875m buy-in with its own staff pension scheme, following on from a similar transaction last year.
Just Group has completed a £74m pensioner buy-in with the UK pension scheme of a US-listed engineering business.
The Smiths Industries Pension Scheme has secured a £146m buy-in with Canada Life in its fourth bulk annuity and its sponsor’s tenth overall.
The Prudential Staff Pension Scheme has entered into a £3.7bn longevity swap with Pacific Life Re, insuring the longevity risk of over 20,000 pensioners.
The Baker Hughes (UK) Pension Plan has secured approximately £100m of liabilities through a buy-in with Just Group.