Canada Life Re provides reinsurance for Aegon’s €6bn longevity hedge

The €6 billion longevity risk transfer hedge completed recently by Dutch headquartered life, pensions and annuities focused insurer Aegon, which Artemis covered here yesterday, was supported by reinsurance capacity from Canada Life Re.

The transaction, which is the first 40% of a €15 billion longevity risk transfer package deal, was completed in July, hedging €6 billion of Aegon’s longevity reserves in the Netherlands, lowering the insurers exposure to longevity improvements.

The longevity hedge covers Aegon for downside risk for a period of 50 years against longevity improvements on its reserves, so required long-term reinsurance capacity to back it.

In the past Aegon has used a mix of traditional and capital markets sources for its longevity hedging capacity, but in this case it has been announced that Canada Life Re provided the reinsurance capacity to cover the €6 billion longevity transaction.

Canada Life Re, the reinsurance division of life and annuities focused insurance and reinsurance group Canada Life, has entered into a long-term reinsurance agreement with Aegon to cover the longevity risk associated with the €6 billion portfolio of subject Dutch annuity business.

The transaction was underwritten by the Canada Life group’s Barbados Branch of The Canada Life Assurance Company division, likely acting as the intermediary insurer before the longevity reinsurance was transacted with Canada Life Re.

If indeed the insurer acted as an intermediary, between Aegon and Canada Life Re, then it could be considered a longevity swap and reinsurance transaction.

Tom O’Sullivan, General Manager of the Barbados Branch of The Canada Life Assurance Company, commented on the transaction; “I am delighted to announce this major transaction. I am particularly pleased with the way we were able to work closely with our partners at Aegon to develop an innovative solution for longevity risks and to create a flexible solution that further improves their risk profile.”

John Occleshaw, global head of Canada Life Re, also commented; “We have once again demonstrated our ability to write large, complex and innovative transactions. It is another significant step in the development of our rapidly expanding reinsurance business with the European market.”

Once again this demonstrates the ability of large life insurance and reinsurance companies to assume major longevity risk transactions, underscoring the availability of capacity for such deals.

Aegon’s two previous longevity risk transfer transactions have involved the capital markets, so it’s perhaps a little disappointing to see this one go purely traditional. However, the cost of reinsurance capital for these risks is low, as life re/insurers value the diversification longevity offers versus mortality exposures and in the currently competitive and soft reinsurance market it’s perhaps no surprise to see this deal go to a single reinsurance market.

Aegon still has 60%, or €9 billion of the €15 billion longevity risk transfer program to complete and is actively shopping for counterparties to complete that hedge as well. Aegon is also seeking longevity risk transfer solutions for its UK pensions and annuities book as well.

This third Aegon longevity hedge has been added to our longevity swap, reinsurance and risk transfer deal directory.