Aegon in €1.4Bn longevity risk transfer to capital markets and reinsurers

Insurer Aegon has announced the completion of its second longevity risk transfer transaction to capital markets investors and reinsurers today. The deal sees Aegon transfer €1.4 billion of longevity risk to third-party investors and reinsurers including SCOR.

It’s the second large longevity swap transaction from Aegon, after the insurer completed a €12 billion deal in early 2012, the largest longevity hedging transaction to date.

Today’s announcement is regarding a transaction which has enabled Aegon to offload a portion of its longevity risk from the Netherlands to the capital markets. The deal has a maturity of 20 years, said Aegon, with a commutation available for exposures running longer than 20 years.

Third-party investors, likely some insurance-linked securities investors and others who appreciate the diversity of a longevity risk asset, as well as reinsurers have provided the capital for the longevity transaction with SCOR the only reinsurer named by Aegon.

The deal covers €1.4 billion of underlying longevity reserves in the Netherlands. Aegon said that it sees the deal as another step forwards in its strategy to open up new capital markets outlets to lay off longevity risk. Aegon also said it will continue to explore new opportunities to offload more longevity risk in the future.

SCOR said that its SCOR Global Life subsidiary took a 50% role in reinsuring the residual trend risk for the transaction.

Gilles Meyer, CEO of SCOR Global Life, commented on the deal; “This innovative longevity transaction is fully consistent with SCOR ’s risk appetite. It satisfies our Group profitability criteria and shows our drive to develop innovative solutions together with our clients. With this deal, we aim to contribute to the development of the longevity market in the Netherlands and other selected markets in continental Europe and to confirm our leading position in this nascent yet important market.”

Denis Kessler, Chairman and Chief Executive Officer of SCOR, added; “This transaction is a good example of what the SCOR Group stands for. It is the outcome of innovation as well as the partnership approach we seek to achieve with our clients, and it also makes sense for our shareholders. It is an early ratification of the challenging objectives we set in our “Optimal Dynamics” three year plan.”

The transaction featured Société Générale acting as the intermediary and Risk Management Solutions (RMS) as the modelling agent.

It’s encouraging to see a new transaction come to market featuring the transfer of longevity risk to capital market investors. The ILS investor space is keen to take on more longevity risk, as are large reinsurers, and the continued efforts to make the market more liquid are a positive step.