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:
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|February 2013||BAE Systems||Legal & General||£3.2bn||Pensioner bespoke longevity swap|
|December 2012||LV=||Swiss Re||£800m||Pensioner and all members over age 55|
|May 2012||Akzo Nobel||Swiss Re||£1.4bn||Pensioner bespoke longevity swap|
|January 2012||Pilkington||Legal & General||£1bn||Pensioner bespoke longevity swap|
|December 2011||British Airways||Goldman Sachs / Rothesay Life||£1.3bn||Pensioner bespoke longevity swap|
|November 2011||Rolls-Royce||Deutsche Bank||£3bn||Pensioner bespoke longevity swap|
|August 2011||ITV||Credit Suisse||£1.7bn||Pensioner bespoke longevity swap|
|February 2011||Pall||J P Morgan||£70m||Non-pensioners index based longevity hedge|
|July 2010||British Airways||Goldman Sachs / Rothesay Lif||£1.3bn||Synthetic buy-in (longevity swap plus asset swap)|
|February 2010||BMW||Abbey Life / Deutsche Bank||£3bn||Pensioner bespoke longevity swap|
|November 2009||Royal Berkshire||Swiss Re||£1bn||Pensioner bespoke longevity swap|
|July 2009||RSA Insurance Group||Goldman Sachs / Rothesay Life||£1.9bn||Synthetic buy-in (longevity swap plus asset swap)|
|May 2009||Babcock||Credit Suisse||£1.5bn||Pensioner bespoke longevity swap (three schemes)|