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Prudential Financial sees growth opportunity in pension risk transfers

More companies with large financial obligations to retirees have been packaging slices of those liabilities to transfer them to others, according to Phil Waldeck, president of Prudential Financial Inc.'s retirement business.

Prudential took advantage of the trend in 2016 on its way to grabbing the largest share of pension buyout deals that year, Waldeck said during the company's investor day presentation. The company expects to see more opportunities in those types of pension risk transfers.

"An interesting trend that we think we'll see more of is jumbo sponsors taking their smallest balance of retirees and packaging them for annuity transfer," he said.

Prudential has grown its pension risk transfer business by taking on plans that serve retirees who are, on average, in their 70s. The business is diversified by geography, industry and gender, and mixes blue-collar and white-collar pension obligations, Waldeck said.

"We continue to view this business as one that will produce internal rates of returns at or above our targets of 11% to 15%," he said. Large plan sponsors have been attracted to Prudential's experience in transferring retirement payment obligations and its capital capacity, he said.

Among the challenges to the business line is the fact that Prudential needs to produce $3 billion of funded retirement liabilities and $1 billion of longevity reinsurance to offset runoff. The returns are lumpy and not predictable quarter by quarter or even year by year, Waldeck added.

Prudential has seen more companies enter the market to buy pension liabilities. Prudential turns away from bidding when the profile of the retirement liability is not attractive to the company, Waldeck said.