SCOR in VIF (Value of In Force) life reinsurance transaction worth EUR1 billion

by Artemis on March 4, 2013

SCOR Global Life Reinsurance Ireland plc, an Irish subsidiary of French reinsurer SCOR Global Life SE, has entered into a life reinsurance transaction with a leading Spanish life insurance company, BBVA Seguros. The transaction sees SCOR reinsure a whole block of life reinsurance risks underwritten by BBVA and the deal takes the structure of a value-of-in-force (VIF) quota share life reinsurance transaction, allowing SCOR to monetize the value of the policies.

Under a value of in-force transaction the present values of the expected future earnings of the ‘in-force’ life insurance business can be realised, less the cost of holding capital to support the in-force business. In this case SCOR is assuming a 90% quota share of BBVA’s single premium and regular premium life insurance business and reinsures the mortality risk.

The block of life insurance business SCOR is assuming the risks for provides mortality and permanent disability cover under mortgage and consumer loan protection policies.

To complete the transaction SCOR Global Life Reinsurance Ireland pays approximately €630 million of reinsurance commission to write this business and in return receives the current reserves of the acquired block of life insurance at inception of the treaty, which SCOR says leads to a very limited initial net cash transfer.

The block of life insurance involved in this VIF transaction is expected to generate a total gross premium volume of around €1 billion for the reinsurer, according to SCOR, with around €120m in the 2013 financial year.

Gilles Meyer, CEO of SCOR Global Life, commented; “This VIF monetization transaction on a traditional mortality portfolio is fully consistent with SCOR Global Life’s strategy and SCOR’s risk appetite. It fully satisfies our Group profitability criteria and will substantially contribute to the 2013 embedded value figures. It will further strengthen our already strong market position in the Spanish Life market”.

These value in force reinsurance transactions allow both parties to benefit. The insurer BBVA is able to offload the mortality risk associated with a book of business and bank the capital gains from this through the reinsurance commission it is paid. For SCOR, the value of the policies it assumes is greater than the sum it pays, as long as the future values and mortality experience of the book of business are as expected, allowing it to profit from assuming the risks.

Another Spanish life insurer, VidaCaixa, entered into a similar deal last year with Warren Buffet’s Berkshire Hathaway.

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