Prudential Financial – General Motors Pension Risk Transfer: Back to the Future? Harvard Case Solution & Analysis

In the month of November 2012, the Prudential Financial and the General Motors closed down on a $25.1B pension risk transfer (PRT) transaction, the largest of its type to date by an order of magnitude both in the U.S. market and internationally. In exchange for an in-kind transfer of $25.1B in assets, Prudential Financial consented to irrevocably guarantee the full payment of pension benefits to about 110,000 participants of General Motors Retirement Program for Salaried Employees and assume all risks related to investment, interest rate, and longevity as well as all operational and administrative requirements to make those payments for as long as required. As they gear to close another important PRT transaction with Verizon, Dylan Tyson and Phil Waldeck, senior managers of the Pension & Structured Solutions group at Prudential, think about the tactical value of these deals for Prudential company strategy as well as the possible growth of the PRT company in light of trends in interest rates and longevity, the regulatory and reporting landscape for defined-benefit pension plans, and the desire for pension funding danger of plan sponsors.

The case examines motorists of pension financing risk interest rate risk, including investment risk, the pension fund sector, and increasing applicant endurance, the regulatory and reporting scenery for the pension funds, and the strategies accessible to pension funds to de-risk their campaign. It afterwards analyzes insurance companies and particularly Prudential Financial's competitive advantage in managing pension risk and executing de-risking strategies for pension funds in the context of Prudential Financial's decision to commit the resources to extend its PRT group that led to pension liability buy-out deal with General Motors. Finally, the case examines the development and implementation of a PRT deal of this size and complexity, and investigates the implications of such deals for the future of the asset management sector.

Prudential Financial - General Motors Pension Risk Transfer Back to the Future Case Study Solution

PUBLICATION DATE: August 23, 2013 PRODUCT #: 213126-HCB-ENG

This is just an excerpt. This case is about FINANCE & ACCOUNTING

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