Prudential inks pension risk transfer agreement with Verizon Communications

Photo credit: Stuart Miles Photo credit: Stuart Miles

Prudential Insurance Company of America has inked a deal to acquire $7.5 billion in pension obligations from Verizon Communications Inc.

The transfer of the telecommunication carrier’s pension obligations under the Verizon Management Pension Plan to Prudential, Newark, N.J. (NYSE: PRU), is expected to occur in December, Prudential disclosed today.

The transaction calls for Verizon to purchase a group annuity contract from Prudential to satisfy periodic payment obligations to Verizon retirees under the plan; and for Prudential to assume responsibility for the payments.

Prudential says the agreement covers approximately 41,000 Verizon Management Pension Plan participants who retired and started receiving pension benefits before January 1, 2010.

Commenting on the deal, John Nadel and Alex Levine, both analysts at the brokerage firm Sterne Agee, Birmingham, Ala., write in a press statement that they expect Prudential to deploy about $400 million of equity to support the transaction. The investment would likely contribute about $0.12 to Prudential’s earnings per share in 2013, assuming a 13-14% return on earnings.

“A key question is whether [Prudential] has now ‘used up’ all or most of its capital capacity, such that buybacks [of Prudential stock] will be curtailed,” the analysts write. “Similar to [Prudential’s deal with General Motors] announced earlier this year, we believe the typical capital necessary to support a pension transfer is around 7-8% of liabilities at the insurance company level.”

The Sterne Agee analysts go onto express confidence in Prudential’s ability to deliver on the company’s 13-14% return on earnings objective. The vote of confidence assumes, among other things, that Prudential will maintain quarterly buybacks of stock totaling $250 million and that Prudential will deploy $4 billion in capital in 2013 to fulfill aggregate pension transfer obligations.

The Sterne Agee analysts thus maintain a “buy” rating on Prudential stock.

 

Related Fixed/Indexed Resources

Powered by

  • Complimentary 7 Page Guide: Turn $200 Into $22,500

    Senior Advisory Group’s iCampaign™ provides its members with consistent opportunities to connect with consumers who are actively shopping for annuities. Download the "Meet Tom B" whitepaper and discover how Tom used iCampaign™ to transform his practice,

  • Construct Your Own Path To Success!

    There is never one path to success, but many, and we can show you all of them. Our Pathfinder will guide through the exploration of how EXACTLY you can take your practice to new heights. Watch the video now!

Comments

Advertisement. Closing in 15 seconds.