Pension Insurance Corp. uses £2B+ of longevity reinsurance in 2014

Pension Insurance Corporation (PIC), one of the specialist providers of insurance and risk transfer solutions for defined benefit pension funds, has utilised over £2 billion worth of longevity reinsurance capacity from global reinsurers in 2014.

In order to be able to continue assuming the quantities of longevity risk that firms like PIC take on during large pension risk transfer, buyout and other transactions they require access to a significant pool of longevity reinsurance capacity. In recent years the capacity needs of pension risk transfer specialists have been more than met by the traditional reinsurance market.

In 2014, PIC says that it has successfully offloaded the longevity risk related to over £2 billion of risk transfer business during the year, with global reinsurance specialists Hannover Re and Reinsurance Group of America the key counterparts.

The £2 billion figure represents the greatest volume of longevity risk PIC has reinsured during any single calendar year (up on around £1.4 billion in 2013). The transactions which utilised reinsurance capacity included PIC’s first “back-to-back” reinsurance deal, coordinating simultaneous transfer of PIC’s exposure to longevity risk with the completion of the £1.6 billion buy-in for the Total Pension Scheme back in June. Hannover Re was the longevity reinsurance firm sat behind that particular deal.

PIC enters into reinsurance contracts with a range of third party reinsurance companies, as it seeks to manage its exposure to longevity and other demographic risks that are assumed during large pension risk transfer deals. In total PIC has now reinsured the longevity risk associated with more than £7 billion of its risk transfer transactions.

Khurram Khan, Head of Longevity Risk at PIC, commented;  “PIC now has an extensive longevity risk management toolkit at its disposal. This includes the use of large and sometimes complex reinsurance transactions that reflect the unique features of the different pension schemes we take on.”

More recent longevity reinsurance and risk transfer reading:

– Pensions need to understand longevity swap obligations: Aon Hewitt.

– Towers Watson gives pensions direct access to longevity reinsurance capacity.

– OECD calls for capital markets to embrace longevity risk hedging.

– New research allows longevity swap basis risk to be better assessed.

– Longevity swaps cover £22 billion of liabilities so far in 2014: Aon Hewitt.