Legal & General targets U.S. longevity risk transfer growth

UK headquartered insurance group Legal & General is looking to expand its activity in longevity risk transfer, through insurance, reinsurance and longevity swaps, to the United States as it sees an opportunity to grow the business there.

Legal & General has been active in the pension fund de-risking and pension risk transfer business for some years, as well as offering specific longevity insurance or swap solutions, which it typically enters into reinsurance arrangements for at the same time.

With this model now seen as successful and maturing in the United Kingdom, Legal & General is looking to expand this into the U.S., which could help to build greater interest in longevity risk transfer, swaps and reinsurance in that country as well.

To-date, the U.S. has not seen a significant amount of longevity risk transfer activity, with the way pensions are funded and plans structured differing to the UK and Europe where longevity swaps are most common.

In recent months there have been more signs of activity emerging there, however, with Canadian pension plans beginning to access longevity risk transfer and some insurers seeking longevity reinsurance coverage.

Longevity risk is naturally going to affect all pensions in time, so the U.S. is expected to require greater amounts of insurance and reinsurance capital to help pension plans support future payments they will need to make. Legal & General is looking to get into the market early, it seems.

Legal & General Retirement, the insurers retirement specific unit, underwrite a £900 million UK pension plan longevity insurance transaction in December 2016, with the risk fully reinsured at the same time.

This model, of entering into large deals but ceding out the risk to reinsurance capital, effectively means that L&G and those like it can get paid for their expertise of sourcing, analysing and pricing risk, without having to hold it for the duration.

Interestingly, the move into the United States could actually be positive for L&G’s ability to underwrite more longevity risk in the UK and Europe as well.

“We retain US longevity risk as it diversifies well against US mortality risk and back book UK longevity risk,” L&G explains.

L&G said that it is currently “Quoting on c.£13bn of UK buy-in and buy-out deals and a variety of longevity insurance opportunities,” but added that it will only seek out pension risk transfer and longevity risk transfer opportunities that meet its capital return requirements.

L&G sees a strong pipeline still for pension risk transfer and longevity insurance in the UK, and now wants to replicate the success its had in Europe in the U.S.

“Our aim is to recreate this disciplined approach in the US, with our US PRT business making progress in 2016,” the company explained, also adding that its L&G Re reinsurance unit aims to participate in the Dutch pension market increasingly as well.

Read about many historical longevity swap and reinsurance transactions in our Longevity Risk Transfer Deal Directory.