UK life insurer Zurich Assurance Ltd. is looking to enhance its view of longevity risk so it can better manage and transfer exposures accumulated through insurance products sold to pension funds, with the help of risk modelling firm RMS and its Longevity Risk Model.
Zurich Assurance is part of the Zurich Insurance Group of companies and offers life, pensions and annuities insurance products to its clients.
The firm has licensed the RMS Longevity Model, a risk model developed with the help of experts in epidemiology, mathematical biology, genetics, biostatistics, financial engineering, public health policy and medical science, to enhance its view of risk.
It will use the longevity risk model to gain greater insight into longevity risks, including the firm’s own assumed liabilities that accumulate from sales of insurance products linked to pension funds, an area it sees as a key growth market.
Understanding longevity risk vital for insurers, as they assume increasing amounts of risk and need to understand how best to use longevity risk transfer and reinsurance to manage their exposures to pensioners or policyholders living longer lives.
Zurich hopes to get a better understanding of longevity risk, to help it manage its own financial risks through external risk transfer and reinsurance.
Simon Johnson, chief actuary for Zurich Assurance, explained; “There has been a lot of recent discussion about a possible slowdown in improvements in longevity, which shows how much uncertainty there can be, even over a short period of time. We’ve partnered with RMS because their model doesn’t just look through the rear view mirror, but combines statistical techniques with the latest insights from medical research to show how longevity may change in the future, for example due to socio-economic, lifestyle and medical factors. We are pleased to be working with RMS as we continue to expand our innovative longevity risk transfer solutions for U.K. pension schemes.”
The RMS Longevity Model uses stochastic simulations along with detailed future longevity scenario analyses, which the firm believes offers a more realistic analysis of future lifespans. The model anticipates future advancements in medical science, such as stem-cell therapies or anti-ageing science and also forecasts the impacts of changing attitudes towards personal health and fitness among the population.
Managing director for RMS LifeRisks®, Sofia Ben El Attar, commented on the relationship with Zurich; “Over the last year, we have supported Zurich’s longevity experts as they adopted the RMS modeling framework to support their view of longevity risk. Right across the market, we’re seeing growing interest in the way our model’s analysis, grounded in the real-world drivers of mortality improvement, is giving clients the necessary insights to manage future liabilities in line with their risk appetites.”
As insurers, like Zurich, take on increasing amounts of longevity risk through insurance provided to pensions the companies need to have a clear view of their own exposure to longevity risk and how that will develop in the future as well, in order to better inform their risk transfer and reinsurance decisions.
Read about many historical longevity swap and reinsurance transactions in our Longevity Risk Transfer Deal Directory.