Fortitude Re Acquires PALAC From Prudential
Prudential Financial, Inc. and Fortitude Group Holdings, LLC have announced that they have entered into a “definitive agreement under which Prudential will sell a portion of its in-force legacy variable annuity block to Fortitude Re for a total transaction value of $2.2 billion.”
A spokesperson said, “Prudential Financial, Inc. [Prudential] and Fortitude Group Holdings, LLC, the parent company of Bermuda’s largest multi-line reinsurer [Fortitude Re], today announced that they have entered into a definitive agreement under which Prudential will sell a portion of its in-force legacy variable annuity block to Fortitude Re for a total transaction value of $2.2 billion.
“Under the terms of the agreement, Prudential will sell one of its stand-alone legal entity subsidiaries, Prudential Annuities Life Assurance Corporation [PALAC], including PALAC’s in-force annuity contracts, to Fortitude Re, for an all-cash purchase price of $1.5 billion, subject to certain adjustments at closing, plus a capital release to Prudential and an expected tax benefit.
“The PALAC block primarily consists of non-New York traditional variable annuities with guaranteed living benefits that were issued prior to 2011, which constitute approximately $31 billion or 17% of Prudential’s total in-force individual annuity account values as of June 30, 2021. PALAC complements Fortitude Re’s market-leading capabilities in designing tailored solutions for leading insurers that enhance capital efficiency and address strategic priorities.
“Prudential will continue to service and administer all contracts in the PALAC block following the transaction to ensure a consistent experience for customers. Prudential does not expect there to be any direct impact to employee head count as a result of the transaction.”
Prudential Chairman and CEO Charles Lowrey said, “We are pleased to have reached an agreement with Fortitude Re, which represents another significant milestone in Prudential’s journey to becoming a higher growth, less market sensitive, more nimble company.
“This transaction underscores how a partnership with the right expertise and financial strength can benefit our customers and investors, while also unlocking new opportunities for our businesses.”
Fortitude Re Chief Executive Officer James Bracken said, “This transaction is an important step forward for Fortitude Re and demonstrates our expertise in delivering comprehensive and value enhancing solutions for our clients.
“Our strong, diversified balance sheet, proven risk management capabilities, and access to Carlyle’s asset origination franchise are key differentiators that enable us to responsibly manage complex, long-dated insurance liabilities. I am excited about the partnership with Prudential and the strategic opportunities this acquisition creates.”
The spokesperson said, “Prudential will retain its interest in all FlexGuard buffered annuity contracts and PALAC recently issued fixed and fixed indexed annuities through a reinsurance agreement with Fortitude Re and, subject to regulatory approvals, intends to offer those FlexGuard and other recent PALAC customers the option to replace the issuer of their contract with another Prudential subsidiary, with further details to be provided to applicable customers.
“Prudential will continue to sell new FlexGuard and other protected outcome solutions through additional existing subsidiaries.”
Prudential Executive Vice President and Head of U.S. Businesses Andy Sullivan said, “Prudential’s individual Annuities business in the U.S. remains an important component of our business mix and organic growth strategy.
“Going forward, we will be better positioned to deliver new investment strategies like FlexGuard, which continues to achieve record success, and focus on creating the next generation of protected income solutions to help more Americans secure their financial future.”
The spokesperson said, “The transaction, which is subject to regulatory approval and other customary closing conditions, is expected to close during the first half of 2022.
“Upon closing, Prudential anticipates a reduction to pre-tax annual adjusted operating income of approximately $290 million. Proceeds from the transaction are expected to be used for general corporate purposes.
“Debevoise & Plimpton LLP served as legal counsel to Fortitude Re. Sidley Austin LLP served as legal counsel to Prudential, and Goldman Sachs & Co. LLC served as exclusive financial advisor.”
