Nov. 6 (Bloomberg) — Prudential Financial Inc., which is taking on billions of dollars of retirement obligations from companies like Motorola Solutions Inc. and Bristol-Myers Squibb Co., said the biggest pension deals make the most sense for the insurer.
The market for smaller pension accounts "tends to be all about price," Stephen Pelletier, chief operating officer of Prudential's U.S. business, said today on a conference call.
On larger accounts, the Newark, New Jersey-based insurer can distinguish itself through its ability to handle complex transactions and deal with thousands of retirees, he said.
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Pelletier sought to assure analysts about his company's model one week after MetLife Inc., the only U.S. life insurer larger than Prudential, said it's been wary of the most sizable deals at current prices.
The biggest transfers leave "little margin for error" on assumptions about life expectancies or bond yields, MetLife Chief Executive Officer Steve Kandarian said Oct. 30.
Erik Bass of Citigroup Inc. was among analysts who sought more information from Prudential. Bass asked about a comment by Motorola Solutions that it won't pay a premium when it turns over $3.1 billion of assets in a deal in which the insurer will handle obligations for 30,000 retirees.
Firms typically pay a premium of 5 percent to 15 percent of the liabilities transferred, CreditSights Inc. analysts have said.
Pelletier responded that the plan sponsors can use different approaches to quantifying liabilities. Discrepancies can result, in part, from the use of different mortality tables, he said.
'Customized View'
"That's all pretty much irrelevant to us," Pelletier said. "We use a consistent and very disciplined methodology with multiple layers of oversight in order to arrive at our customized view from the ground up of the economic risks that we're taking on in a given transaction."
General Motors Co. and Verizon Communications Inc. have also shifted pensions to Prudential. GM eliminated about $26 billion of obligations in 2012, when it struck a record deal with Prudential.
"We think PRU's management addressed well and head-on the continued concerns voiced both by investors and a few competitors over the pricing and returns of its pension risk transfer business," analysts led by John Nadel at Sterne Agee & Leach Inc. said in a note to investors today. "Although we expect doubts will likely persist."
Prudential slipped 4.9 percent to $84.53 at 1:38 p.m. after posting third-quarter results yesterday that missed analysts' estimates. The company has dropped 8.3 percent this year, while New York-based MetLife is little changed since Dec. 31.
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