Delta Lloyd & RGA in second €12 billion longevity swap deal

Dutch insurance, pensions and investments firm Delta Lloyd and Reinsurance Group of America (RGA) have entered into their second index-based longevity swap transaction, which again covers underlying longevity reserves of around €12 billion.

Again, the transaction is a described as a longevity replication derivative based on Dutch population mortality data. It has an eight year duration and has a has a notional value of €350 million. It aims to reduce Delta Lloyd’s liability related to pensions and annuities policyholders living longer than anticipated.

Delta Lloyd and RGA entered into a similar longevity risk transfer arrangement in 2014, which also covered €12 billion of liabilities.

Delta Lloyd Executive Board chairman, Hans van der Noordaa, explained; “It is the second time Delta Lloyd has transferred a part of its longevity exposure to the reinsurance market. Both transactions, the first one was in 2014, are part of our sound and efficient capital management. We continuously investigate options to optimise our capital structure and strengthen our balance sheet, through our product mix, underwriting, asset optimisation and transactions, such as announced today.”

The latest transaction sees RGA providing longevity risk protection and capital benefit on longevity reserves totaling around €12 billion to Delta Lloyd Levensverzekering N.V., a Dutch life insurance arm of the Delta Lloyd Group.

“This marks RGA’s second transaction with Delta Lloyd to mitigate a portion of Delta Lloyd’s longevity risk,” Paul Sauvé, Senior Vice President of Global Financial Solutions, EMEA, RGA, said “We see considerable interest in the EMEA region for proven solutions that address the new capital requirements framework and are actively talking to our clients about how such liability replication strategies can be applied to similar opportunities.”

“With this transaction, RGA again demonstrates its ability to implement creative and effective solutions for our clients under changing regulatory environments,” added David Boettcher, Executive Vice President and Chief Operating Officer, Global Financial Solutions, RGA. “By applying our extensive knowledge of biometric risk, we are able to offer efficient, flexible solutions that integrate with our clients’ capital models for Solvency II as well as address the requirements of other principles-based solvency regimes and frameworks around the globe, such as SAM (in South Africa), C-ROSS (in China), and SST (in Switzerland).”

The underlying risk transfer contract between the two parties has been entered into directly and has an in-force date of 1st January 2015. The €350 million notional is the maximum pay out at maturity of the contract.

Delta Lloyd said that the longevity risk transfer deal “anticipates the new Solvency II framework and has a limited impact on the IGD solvency ratio and on the operational result over time.”

At this time it’s not clear whether RGA Re has held the longevity risk associated with this deal, or offloaded some of it with other reinsurance markets.

View the list of transactions in our Longevity swap and risk transfer deal directory.