Prudential Financial’s agreement to reinsure $12.5 billion of in-force guaranteed universal life policies with Somerset Re, is broadly credit neutral over the near term, according to Fitch Ratings.

Somerset Re is incorporated in Bermuda and is licensed and regulated by the Bermuda Monetary Authority.

The block of business represents approximately one-third of Prudential’s in-force guaranteed universal life statutory reserves.

The transaction represents the latest step in Prudential’s strategy to reduce exposure to market-sensitive liabilities and allow the company to redeploy capital to support higher growth and less capital-intensive lines of business.

Prudential’s agreement with Somerset Re follows the company’s May 2023 agreement with a subsidiary of Constellation Insurance Holdings to reinsure a $10 billion block of Prudential Defined Income traditional variable annuity contracts with guaranteed living benefits. It represented 10 per cent of the account value of Prudential’s remaining in-force traditional variable annuity policies.

This followed the April 2022 close of the sale of its standalone full-service retirement business to Great-West LifeCo, as well as the sale of approximately $31 billion of its in-force variable annuity block to Fortitude Re.

Although Prudential’s current ratings are not affected by the announced transaction, Fitch believes recent actions will have a favourable longer-term impact on Prudential Financial’s business risk profile.

The most recent transaction follows similar actions by peers as well as a second-quarter 2022 reserve strengthening charge related to the company’s guaranteed universal life policies.

The cumulative actions taken by Prudential Financial may modestly reduce both the level and diversification of earnings in the short term but Fitch notes that continued growth in mortality-based earnings and cashflow from Japan and other non-US insurance markets, as well as continued growth in asset management, enhance the company’s diversification.