Competition & growth in longevity reinsurance sector continues: RGA

by Artemis on August 7, 2015

As the longevity reinsurance market continues to grow in volume and expand its reach, executives from Reinsurance Group of America (RGA) highlighted a competitive sector during the first-six months of the year.

During its recent Q2 and H1 2015 earnings call, RGA explained that solid results across its non-traditional Europe, Middle East and Africa (EMEA) business, which posted a 47% increase in pre-tax operating income, was helped by favourable experience in existing longevity treaties, an area the firm continues to benefit from.

The global longevity insurance and reinsurance market has witnessed impressive growth in recent years, as large life insurers, reinsurers and pension schemes look to hedge some of the risks associated with their mortality books, utilising sources of longevity reinsurance capacity.

As a result, every longevity reinsurance transaction that takes place is subject to stiff competition, as an increasing number of market players show a willingness to assume large lines of longevity risks from pension schemes.

“We certainly expect the longevity market globally to remain active, and increasingly so… There is a plenty of competition,” said RGA President, Director and Chief Executive Officer (CEO), Albert Greig Woodring.

RGA is a prominent figure in the longevity risk transfer landscape, recently entering into a £2.8 billion longevity transaction with the AXA UK pension scheme, which came soon after it announced a €12 billion longevity swap deal with Dutch firm, Delta Lloyd.

The second €12 billion longevity swap between the two companies in as many years, reported at the time by Artemis.

The UK is home to the largest longevity market in the world, notes RGA, but owing to increased competition in the region, and globally for longevity risks, and a desire to expand its global longevity presence, RGA is looking at other markets too, “and expects that those markets will grow in terms of demand as well,” confirmed Woodring.

“There’s less of the business available in the UK. There is plenty of competition, but I would say that the supply of business available still exceeds the demand from reinsurers or the risk takers for that business, to the point where we can find places where we can transact at our pricing effectively and have done so,” explained Woodring.

Signalling that perhaps there isn’t as much of an abundance of capacity available from traditional sources for the risk, as some might choose to believe, and emphasising RGA’s ability to transact at its desired pricing in competitive market conditions.

Clearly this view differs from other longevity reinsurance swap participants, with some claiming they could write the business forever, by simply offsetting the risks of their mortality business.

Earlier this year Aon Hewitt, the retirement, talent and health solutions business of re/insurance broker Aon plc., claimed that the UK longevity transfer market had reached $50 billion of deals, with a further $20 billion predicted for the remainder of 2015.

And while sector growth is a good sign, discussions surrounding the longevity reinsurance market bring to mind an argument brought forward by PwC back in 2013, which signalled that perhaps the capacity of the traditional reinsurance sector, albeit plentiful, might not be enough to support the potential growth of the longevity market.

Something we’ve discussed here at Artemis before, which reveals an opportunity for the capital markets, including alternative capital providers, insurance-linked securities (ILS) and catastrophe bond players, to increasingly offer additional reinsurance capital and support in the transferring of longevity risks.

With the market predicted to continue on its path of accelerated growth in the coming years, it’s likely that capital market participants will become more and more common in the longevity swap space, as traditional re/insurers continue to show an appetite for assuming the risk and look to avoid any potential overexposure.

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