SCOR Global Life, a subsidiary of French reinsurer SCOR SE, has completed a VIF (Value of In Force) life reinsurance transaction with Mediterráneo Vida, a Spanish insurer owned by Banco Sabadell.
The VIF reinsurance deal, which became effective on January 1st 2014, sees SCOR reinsure a portfolio of life policies covering mortality and permanent disability risks which had been underwritten by Mediterráneo Vida up to December 31st 2013.
SCOR is no stranger to assuming mortality risks through these VIF reinsurance deals. A year ago the reinsurer announced a EUR 1 billion VIF reinsurance transaction with another Spanish life insurance company.
Under a value of in-force transaction the present values of the expected future earnings of the ‘in-force’ life insurance business can be realised, less the cost of holding capital to support the in-force business. So SCOR hope to profit by taking on and managing these in-force life policies while at the same time perhaps optimising its portfolio hedge of mortality risk to longevity risk.
SCOR Global Life will pay Mediterráneo Vida a commission of EUR 82 million. The transaction will be immediately accretive to the reinsurers ROE target and it expects the VIF business to generate premium income of around EUR 30 million in 2014 and a stream of premium in the following years.
Paolo De Martin, CEO of SCOR Global Life, commented on the deal; “The transaction with Mediterráneo Vida demonstrates the ability and commitment of our teams to work closely with our clients to develop innovative financial solutions to support their needs. This new operation clearly illustrates SCOR’s capacity to deploy its strong balance sheet while fully satisfying our Group profitability criteria. It also represents a further step forward in terms of meeting the objectives set out in our “Optimal Dynamics” strategic plan.”
These transactions are quite interesting and it is perhaps a little surprising that we haven’t seen a capital markets backed vehicle emerge to tap into VIF business, by financing the assumption of blocks of value-in-force life policies, perhaps paying a reinsurer or insurer to manage them and splitting profits with them. It could be a similar model to run-off vehicles, of which more and more are emerging where third-party and capital markets investors can tap into their returns.
For SCOR the mortality to longevity hedge may be increasingly important as the reinsurer has transacted a number of large longevity swap and longevity reinsurance deals in recent years. Providing this type of reinsurance to European life insurers allows the insurer to free up capital, while SCOR can profit by running down the business and benefit from the offsetting effect of the mortality risk.