Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

RGA in $200 billion mortality risk retrocession to Pacific Life


Life reinsurer Reinsurance Group of America Inc. has offloaded a massive $200 billion block of mortality risk associated with in-force individual life reinsurance business to the retrocession operations of Pacific Life Insurance Company.

The aim of the transaction for RGA is to free up capital to put to work in other opportunities, something RGA has focused on lately with its Chesterfield life embedded value securitisation. By retroceding blocks of reinsurance business the firm can liberate capital that can be used to acquire better priced or performing books in new life reinsurance deals.

RGA said that this transaction will free up $200m of capital for it, while at the same time for Pacific Life the benefit is to acquire mortality risk to enable it to keep its mixed longevity mortality book balanced.

In this deal RGA subsidiary RGA Reinsurance Company is retrocessionally reinsuring a block of U.S. individual life reinsurance business to the retrocession operations of Pacific Life Insurance Company. The subject business consists of both term and permanent individual life policies written by U.S. insurers that have been reinsured by RGA mostly between 1999 and 2004.

In total as a result of the transaction RGA will retrocede around $200 billion of in-force individual life reinsured amount at risk, with the transaction having an effective date of the 1st October 2014.

“We are pleased to have been able to work with Pacific Life, a long-standing trusted partner, to find an opportunity that provides them with additional mortality risk and also allows us to release capital that can be deployed into other opportunities. This transaction highlights the attractiveness of mortality blocks to entities with complementary risk profiles,” commented Anna Manning, Senior Executive Vice President, Global Structured Solutions, RGA.

Greig Woodring, President and Chief Executive Officer of RGA, added; “This is a meaningful event for RGA and it demonstrates our commitment to manage capital efficiently and effectively. As part of our broader capital management plans, we expect that the capital freed up from this transaction can be redeployed to achieve a higher return over time. We continue to see good organic growth opportunities, and have selectively used excess capital for in-force blocks, including two recently announced transactions in the U.S. life and annuity sector.”

RGA said that it estimates that the completion of this retrocession deal will release around $200m of capital which it believes it can redeploy in a manner which is accretive. That’s the whole premise of the deal for RGA, aside from also balancing its own book from a hedging of mortality to longevity point of view. RGA also estimates that the deal will reduce annual premiums in its U.S. Traditional segment by approximately $450 million.

Interestingly, Pacific Life recently reinsured around £1 billion of longevity risk for Rothesay Life, which likely makes the acquisition of a large book of mortality business attractive from a natural hedge perspective.

Also of interest, RGA recently completed a $300m embedded value life reinsurance securitsation, which saw it offload life reinsurance risks to capital markets investors. So alongside this deal RGA has freed up significant capital from its legacy life reinsurance business to put to work elsewhere.

It is possible that RGA may redeploy some of this capital into longevity business, which it also participates in and which has been seen as highly profitable of late. Moody’s recently noted, in commenting on the Chesterfield embedded value deal, that freeing up capital from legacy business in this way can be risky as there is no guarantee that the new business you put the capital to work in will be as profitable as the old business that you have retroceded.

Artemis Live - ILS and reinsurance video interviews and podcastView all of our Artemis Live video interviews and subscribe to our podcast.

All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance video content and video interviews can be accessed online.

Our Artemis Live podcast can be subscribed to using the typical podcast services providers, including Apple, Google, Spotify and more.

Print Friendly, PDF & Email

Artemis Newsletters and Email Alerts

Receive a regular weekly email newsletter update containing all the top news stories, deals and event information

  • This field is for validation purposes and should be left unchanged.

Receive alert notifications by email for every article from Artemis as it gets published.