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IV. Developments and Trends in Longevity,
Pension Close-outs and De-risking Transactions
IV. Developments and Trends in Longevity, Pension Close-outs and De-risking Transactions
The longevity risk and buy-out markets continued their robust performance in 2015, as global deal volume exceeded $40 billion for the second consecutive year. The 2015 market was characterized by a diversity of participants and a continued increase in deal size at the market’s high end, where the average deal now exceeds $3 billion.
The market achieved a significant milestone in March with the execution by The Bell Canada Pension Plan and Sun Life Financial (“Sun Life”) of the first longevity transaction in North America. The buy-in transaction transferred C$5 billion in pension liabilities from Bell Canada to Sun Life, which reinsured a portion of the liabilities with SCOR Global Life and RGA Life Reinsurance Company of Canada.
The largest transaction in this year’s longevity market was the €12 billion index-based longevity swap between Delta Lloyd Levensverzekering N.V., the Dutch life insurance arm of the Delta Lloyd Group, and RGA Re. The deal, which was executed in June, will mitigate the longevity risks relating to Delta Lloyd’s Dutch life insurance portfolio for a period of six years. The two parties executed a similar €12 billion deal in 2014. A further European transaction followed in July, when Aegon passed the longevity risk associated with a €6 billion portfolio of Dutch annuity business to Canada Life Re. The latter transaction represents the first 40% of a €15 billion package deal. In December, the Dutch insurer ASR Nederland N.V. transferred €200 million of longevity and asset risk to Legal and General Re, with Hannover Re acting as an intermediary. This is the first transaction executed by Legal and General Re, which is registered in Bermuda. TheseEuropeantransactionsevidencethespread of activity outside of the U.K. and the U.S and during 2016 we expect there to be a strong desire for further geographical market expansion and diversification.
Developments and Trends in Insurance Transactions and Regulation 2015 Year in Review
The U.K. market continued its strong performance in 2015.
The market grew to include nine active insurers—a new high—
and featured several noteworthy transactions. The Prudential Insurance Company of America (“Prudential”) and Pension Insurance Corporation (“PIC”) executed deals in April and June, pursuant to which Prudential will provide PIC with an aggregate
of approximately $2.4 billion of longevity protection. The April transaction covers the pension liabilities of approximately
6,700 retirees, while the June transaction covers a block of 74 pension schemes. Each of Prudential and PIC was also active
in other transactions. In August, Prudential entered into a transaction with Legal & General Group Plc (“L&G”) pursuant
to which Prudential Retirement Insurance and Annuity Company will provide longevity reinsurance for approximately
$2.84 billion of liabilities associated with L&G’s bulk annuity business. The deal follows a similar 2014 transaction between Prudential and L&G that involved approximately $2.16 billion in liabilities. In November, PIC concluded a £2.4 billion buy-out transaction with Philips UK Pension Fund and the simultaneous reinsurance of the associated longevity risk with Hannover Re. 29 The deal covers pension benefits for approximately 26,000
U.K. pensioners and was notable as the largest full buy-out transaction to date in the U.K. and for the unprecedented number of non-retired members covered by its terms.
The year 2015 was notable not only for new entrants and structures, but also because we saw a repeat of structures initially developed during 2014, such as the use of a sponsor’s own insurance company as an intermediary (namely, the £5 billion transaction announced during March 2014 whereby Aviva’s own insurance carrier acted as a conduit to transfer longevity risk from the Aviva Staff Pension Scheme to Munich Re, Swiss Re and SCOR SE). During July it was announced that the AXA U.K. Group Pension Scheme accessed reinsurance capacity on offer by RGA Re by using its own insurance vehicle. The £2.8 billion longevity swap covered approximately 11,000 members, which is approximately half of the scheme’s total liabilities. In November, Aviva extended its 2014 transaction to the RAC (2003) Pension Scheme, another Aviva sponsored pension scheme. £600 million of longevity risk was passed