NN Life, part of the Nationale-Nederlanden (NN Group), has secured reinsurance and swap arrangements with leading reinsurers Canada Life, Munich Re and Swiss Re to transfer all of the longevity risk associated with some EUR 13.5 billion of pension liabilities from the Netherlands.
NN Group said that the longevity reinsurance arrangements will lower its required capital and strengthen its capital position, by covering the risks associated with the policies of over 200,000 pensioners and dependants.
David Knibbe, CEO NN Group, commented, “These transactions to transfer a part of our longevity exposure are part of our pro-active risk and capital management approach. We continuously investigate options to optimise our capital structure and to further strengthen our balance sheet, through our product mix, underwriting, asset optimisation and risk transfers.”
Canada Life, Munich Re and Swiss Re are among the largest players in the longevity reinsurance market and in supporting this deal will have secured a significant slice of diversifying life related risks for their portfolios.
For NN Life, entering into these longevity reinsurance transactions has an immediate capital benefit, with the company forecasting a roughly 25 percentage points increase to its Solvency II ratio, which at the end of April 2020 was estimated at approximately 220%.
In addition, the NN Group will benefit from a roughly 17 percentage point increase in its Solvency II ration thanks to the reinsurance deal, at the end of April 2020 this was estimated at approximately 225%.
It drives an immediate upfront capital benefit, as well as lower future operating capital generation of approximately EUR 90 million per annum, the company explained.
The ongoing longevity reinsurance premiums will reduce the IFRS operating result before tax by approximately EUR 30 million per annum.
The company said that it intends to use the stronger capital position to improve NN Life’s capital generation profile and increase the level of its remittances to NN Group as from the second quarter of this year.
Sidley Austin LLP represented Munich Re for its portion of the arrangement, which it turns out was a reinsurance swap transaction covering €3.8 billion of the subject pension liability longevity risks.
Munich Re said that it is the first significant longevity transaction in the Netherlands for the company, but represents part of a strategy to grow this component of its business, offering tailored solutions and significant capacity to select longevity markets.
“We are very pleased to have delivered a key de-risking solution to NN Life and its customers and to have completed our first, of what we intend to be many, significant international deals. This is a natural addition to our significant UK longevity offering,” commented Martin Lockwood, Munich Re UK Life Branch Head of Longevity.
“Lawyers from the Sidley insurance and finance teams have been working seamlessly with Munich Re on the structuring and successful execution of this complex transaction,” explained Martin Membery, Sidley Austin, Partner
We last covered NN Group back in 2017 when it entered into an index based longevity hedge with Hannover Re, transferring some EUR 3 billion of its longevity risk related pension liabilities.
Read about many historical longevity swap and reinsurance transactions in our Longevity Risk Transfer Deal Directory.