Pension Insurance Corp. increases use of longevity reinsurance in 2015

by Artemis on March 25, 2016

London-based Pension Insurance Corp. (PIC) increased the volume of longevity exposure it reinsured in 2015 to £3.8 billion, supporting the growing trend of specialist pension insurers utilising longevity reinsurance capacity to manage their exposures.

PIC recently reported its 2015 financial results, revealing a solid year that saw the firm reinsure 73% of its longevity exposure, compared with 66% a year earlier.

Willis Towers Watson predicted growth in the longevity reinsurance market in 2016, a notion that’s supported by other industry analysts and experts also, on the back of a busy year for the sector in 2015.

PIC’s increased use of reinsurance capacity to hedge the potential risk of customers living longer than expected supports the prediction of further market expansion, and highlights increased demand for reinsurance capacity.

UK domiciled Prudential plc reported a substantial increase in its use of longevity reinsurance protection in 2015 too, citing the important contribution it brings to new capital requirements under Europe’s new Solvency II regulation.

So it’s clear that PIC, like Prudential is increasing its reliance on longevity reinsurance and risk transfer solutions, a trend that could lead to a rise in demand for reinsurance capacity that has the potential to alleviate some of the supply/demand imbalance pressures in the global reinsurance space.

The reinsurance market remains overcapitalised as a result of benign losses and stiff competition from an increasing number of alternative capital providers that continue to enter the sector, along with the traditional players.

So any uptick in demand for reinsurance capacity could help to remove some of the excess capital, providing firms with new avenues to deploy funds and ultimately reducing the negative impacts of the softening landscape.

Currently, reinsurance companies seem more than capable and willing to take on as much longevity exposure as is available, so it might be a little while yet before capital markets capacity has an influence here.

That being said, as more life and annuities insurers and pension funds seek to hedge their longevity exposures with longevity swaps and alike, insurance-linked securities (ILS) capacity could have an opportunity to provide an efficient, diversified source of additional capacity to support the longevity risk transfer market’s expansion.

“Despite a volatile economic and market backdrop 2016 is shaping up to be a very good year in the bulk annuity sector, with a strong pipeline of new business,” said PIC Chief Executive Officer (CEO), Tracy Blackwell.

A strong pipeline of new business suggests PIC has started the year well and expects another good year come December 31st, as a result of potentially increasing its volume of new business the firm could require even more reinsurance capacity to cover its longevity exposures, further supporting the expected growth of the longevity reinsurance sector.

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