Home ListingFebruary 24, 2015

Pru Splits Latest Mega-Buyout Deal with Competitor

For the first time in recent years, a multi-billion dollar US pension-risk transfer will involve an insurer other than just Prudential.

Reported by Featured Author

Kimberly-Clark—the company behind Kleenex, Huggies, and Tampax—has reached a deal to offload $2.5 billion in pension liabilities across two insurers: Prudential and MassMutual.

The transaction, expected to begin June 1, would rank among the five largest US pension-risk transfers (PRT) by total liability size. GM’s mammoth $26 billion deal from 2012 has held fast in the top spot, followed by 2013’s $7.5 billion annuity purchase by Verizon and Motorola’s $3 billion transfer last year.

New Jersey-based Prudential acted as the sole annuity provider in all of these mega-buyouts—a streak set to end with Kimberly-Clark. Prudential, the sector’s most dominant actor, has agreed to cover half of the roughly $2.5 billion liability and administrate benefits. MassMutual has signed on to shoulder the remaining $1.25 billion.

“The fact that this transaction involves two insurers is interesting,” Sean Brennan, Mercer’s top US PRT expert, told CIO. “This is the first one of the jumbo deals to do that.”

Kimberly-Clark, Brennan continued, was “not just thinking about what makes sense from a corporate perspective, but also a participant perspective. Multiple providers enhances participant security relative to a single insurer general account, and increases competition.”

Kimberly-Clark CFO Mark Buthman suggested that by splitting each retiree’s benefit evenly between Prudential and MassMutual—“both highly-rated insurance companies and experts in this field”— this PRT de-risked both the corporate balance sheet and members’ retirements.

State Street Global Advisers, which represented participants’ interests as an independent fiduciary, settled on the MassMutual-Prudential pairing as “the safest available structure” to replace the pension.

Furthermore, according to Mercer’s Brennan, the entrance of another player into the formerly monopolized space bodes well for the industry overall. Plan sponsors offloading less than $1 billion in liabilities have plenty of options for bulk annuity providers, he noted. “Above $1 billion—Prudential has been successful in that account. But we do see insurers getting into the US market, or revisiting it: Legal & General, for example, has been building capabilities.”

Prudential remains a dominant force in Brennan’s view, with “a lot of appetite to take on transactions.” Still, he suggested, MassMutual’s mega-PRT debut along with Legal & General’s US goals bode well for plan sponsors looking to wash their hands of large liabilities. “We welcome the addition to the competitive landscape.”