Pension Insurance Corporation, a UK insurer of defined benefit pension funds, has reinsured £1bn ($1.3bn) of longevity liabilities with French reinsurer Scor.
The reinsurance agreement covers the longevity risk for around 7,000 in-payment lives and, where applicable, their spouses, across six defined benefit pension schemes which completed buy-in transactions with PIC over the past year.
Following the deal with Scor, PIC now has eight longevity swap reinsurance counterparties.
Together with other reinsurance undertaken in the year, PIC has now reinsured more than 70% of its total longevity exposure.
Khurram Khan, head of longevity risk at PIC, said: "A full market tender process was run with Scor being the successful reinsurer. PIC is now protected against unexpected longevity increases for another 7,000 lives and can release regulatory capital as a direct result. We have also acquired a new reinsurance partner thereby helping to widen our counterparty relationships under these very long-term contracts."
Reinsurer longevity risk has been a tenet of PIC's strategy since the firm was established in 2006. With larger pension insurance deals, the business arranges back-to-back reinsurance and has contracted with a number of providers over the years, including Hannover Re and Prudential Financial. These deals have tended to be in the £1bn-2bn range.
The firm is understood to have explored using capital markets to transfer longevity risk, but has not found it competitive with traditional reinsurance for two main reasons: first, PIC would lose some regulatory capital benefits if the risk transferred did not totally match its liabilities, and the perception is that capital market investors would prefer not to take on idiosyncratic risks; second, capital market instruments are usually term-limited and there are complications around determining the outstanding longevity risk at the end of the term and hence how much of their principal investment investors should receive.
People:Khurram Khan
