The Prudential Insurance Company of America (PICA) has agreed to assume approximately £1bn of pension liabilities from Aviva's bulk annuity business.
Announced today (August 8), this is the first longevity reinsurance deal between Prudential and Aviva, and establishes a new partnership in an increasingly busy market.
Aviva managing director of defined benefit solutions Tom Ground said he hoped this deal would be the start of a longer term relationship.
"As one of the leading reinsurers, [PICA] has the credentials and scale to support our own growth ambitions as we continue to increase deal volumes in the UK," he said.
Prudential head of longevity risk transfer Amy Kessler added that market activity in 2018 is clearly building toward a very strong second half.
"Rising rates and equities, combined with lower-than-expected longevity improvements, mean that pension schemes are very well-funded and that de-risking is more affordable than ever," she said.
"Leading pension schemes are taking advantage of this favourable environment by locking in gains and transferring risk, knowing that such advantageous markets are always fleeting."
The EU-wide Solvency II regime, which came into force in January 2016, has pushed providers to reinsure more longevity risk in their bulk annuity books.
Hymans Robertson partner and risk transfer specialist Michael Abramson said PICA's deal with Aviva increases the flow of UK longevity risk to overseas counterparties.
"Given the capital requirements for insurers continues to penalise them for retention of longevity risk, we expect offshore reinsurance to be a continuing trend.
"This will in essence be helpful for UK pension schemes so long as the insurers' exposure to reinsurers is appropriately managed, as there is unlikely to be sufficient longevity capacity from UK firms alone to meet pension scheme demand for bulk annuities."
The reinsurance deals are competing with schemes that want to de-risk their liabilities through a longevity swap, added Lane Clark & Peacock partner Charlie Finch.
"It's much easier for an insurer to do business with another insurer it has done business with before than it is with a pension plan, which is making the market a little bit challenging," he said.
"This is very much a Solvency II phenomenon - as it encourages insurers to take out longevity reinsurance in a way they weren't previously doing. There are definitely more reinsurance deals to come this year, but not all of them will be announced."
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.