UK headquartered insurance and pensions specialist Legal & General (L&G) and German headquartered reinsurance firm Hannover Re have teamed up to complete a €200 million European pension risk transfer and reinsurance deal.
The transaction is the first time that L&G has been involved in the European pension risk transfer market, with this transaction with Dutch insurer. As a result L&G is now writing pension risk transfer business in the UK, US and Europe.
The deal saw Dutch insurer ASR Nederland NV transfer €200 million of pension obligations to Legal & General Re (L&G Re), the firms global reinsurance vehicle, working in tandem with Hannover Re.
Hannover Re did not assume the risk from this deal, rather acting as a pass through vehicle, with L&G Re assuming all of the pension risk transferred, both longevity and asset risk.
For ASR Nederland NV the €200 million of pension obligations is just a part of its pension portfolio and will allow it to optimise its balance sheet risks.
Manfred Maske, CEO of Legal & General Re, commented; “Entry into the European pensions risk transfer market represents a significant milestone for L&G Re. Put together with the recent European Union announcement of full Solvency II equivalence for Bermuda this has been a terrific couple of weeks for L&G Re.”
Chris Figee, CFO of ASR Nederland NV, explained; “We are happy about this strategic partnership with Legal & General Reinsurance, which is a reliable and financially strong partner with extensive international experience. This partnership gives us the opportunity to optimise our balance sheet; what is more, it ties in with a.s.r.’s ambition to be an innovative player that sees its customers as its first priority.”
Maske added; “The dealings we have had with a.s.r. so far give us confidence that we can successfully build on our partnership. We are looking forward to doing our part in helping a.s.r. to offer robust pension solutions to its customers.”
Legal & General Reinsurance Company was registered in Bermuda in 2013 and established in 2014 as a reinsurance hub to help L&G grow its international pension risk transfer business. This is the first transaction executed through L&G Re.
Kerrigan Procter, Managing Director, Legal & General Retirement, explained the importance of this business line for L&G; “The pension risk transfer business has become a global business for Legal & General. The potential market for pension risk transfer in the US, UK, and Europe is huge, and will play out over many decades.
“The entry into Europe and our recent $450 million US Royal Philips transaction show case our unique one stop solutions providing our clients; pension risk transfer expertise, asset management skills, and global reinsurance capabilities.”
While this transaction involves the reinsurance and transfer of all obligations or liabilities associated with the €200 million piece of ASR’s pension portfolio, it also sees the longevity risk associated with it transferred to the reinsurers involved.
James Mullins, Head of Risk Transfer and Partner at consultancy Hymans Robertson, commented on the transaction; “This is confirmation of the now global market for risk transfer. UK pension schemes have enjoyed a near monopoly on supply for the past 5 years, but that is set to change. With more choice of markets, reinsurers who are taking on longevity risk may look to increase pricing over the longer term, but that goes against the trend we have seen for some time now of reinsurers keeping prices low – strong competition, intense interest in the sector and appetite for deals has kept it that way.
“The fact is, the UK has and likely will continue to be the pioneer marketplace for this industry. The expertise developed here is now being exported overseas, but it wouldn’t be surprising to see innovation coming back this way in the medium term, offering new routes to de-risking for UK pension schemes.”
Finally, it’s worth noting that ASR is set to be privatised in the Netherlands, having become a state-owned insurer after the collapse of Fortis in 2008. The Netherlands Finance Minister has approved the privatisation and sale of ASR in 2016, as long as it is financially stable. This transaction could be part of the insurers strategy to achieve that goal, by laying off additional risk to the reinsurance market.