Hannover Re assumes £1 billion of longevity risk in two reinsurance transactions

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German reinsurer Hannover Re has completed two block reinsurance transactions for longevity risks in the UK which between them will see the reinsurer assume around £1 billion worth of pension plan longevity risks. This brings the total amount of longevity risk assumed by the reinsurer in 2013 to around £3 billion when added to its transaction with UK insurer Legal & General which was announced in February.

The two new longevity reinsurance transactions announced by Hannover Re today were with Abbey Life, a subsidiary of Deutsche Bank, in a longevity risk transfer worth £490m and with Goldman Sachs subsidiary Rothesay Life in a deal worth £460m. Hannover Re is assuming longevity risks from each of these insurers, both of whom are known to have insured pension plans against longevity risks in the past.

“In our latest block transactions we serve as the exclusive reinsurer and have once again proven our expertise when it comes to reinsurance products in the field of longevity risks. In this context, as is also the case with Legal & General, we assume only the biometric – not the investment – risk”, commented Hannover Re’s Chief Executive Officer Ulrich Wallin.

For Hannover Re, assuming the risk that pensioners live longer than expected will prove profitable. Both deals will generate a premium income of £53m for 2013. Added to the premiums from the Legal & General transaction, Hannover Re will see an additional £150m of premium income from longevity reinsurance transactions this year.

The completion of these two longevity reinsurance makes Hannover Re a major holder of UK longevity risks. At some point it is safe to assume that Hannover Re will seek to transfer some longevity risk off its books to capital market investors, however in February when we asked the reinsurer whether this was possible a spokesperson told us that pricing was not attractive enough to make this an efficient way to reduce its risk and it was happy holding longevity risks on its own books.

Here’s a useful list of other major UK longevity risk transfer transactions to date:

DateFundProviderApprox sizeSolution
February 2013BAE SystemsLegal & General£3.2bnPensioner bespoke longevity swap
December 2012LV=Swiss Re£800mPensioner and all members over age 55
May 2012Akzo NobelSwiss Re£1.4bnPensioner bespoke longevity swap
January 2012PilkingtonLegal & General£1bnPensioner bespoke longevity swap
December 2011British AirwaysGoldman Sachs / Rothesay Life£1.3bnPensioner bespoke longevity swap
November 2011Rolls-RoyceDeutsche Bank£3bnPensioner bespoke longevity swap
August 2011ITVCredit Suisse£1.7bnPensioner bespoke longevity swap
February 2011PallJ P Morgan£70mNon-pensioners index based longevity hedge
July 2010British AirwaysGoldman Sachs / Rothesay Lif£1.3bnSynthetic buy-in (longevity swap plus asset swap)
February 2010BMWAbbey Life / Deutsche Bank£3bnPensioner bespoke longevity swap
November 2009Royal BerkshireSwiss Re£1bnPensioner bespoke longevity swap
July 2009RSA Insurance GroupGoldman Sachs / Rothesay Life£1.9bnSynthetic buy-in (longevity swap plus asset swap)
May 2009BabcockCredit Suisse£1.5bnPensioner bespoke longevity swap (three schemes)
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