RGA International Reinsurance Company Limited, a subsidiary of
Reinsurance Group of America, Inc.
) has been chosen by Royal London Mutual Insurance Society Ltd. as
a reinsurance partner for its pension-related longevity risk. The
agreement will transfer the £1.0 billion longevity risk of Royal
London via reinsurance contracts, which will be issued by RGA
Reinsurance Group's significant capacity to write longevity to
balance sheet and its financial strength, reinforced by its
expertise, offer a compelling proposition for long-dated longevity
Longevity risk is faced by pension or annuity providers. It is an
indication that customers may live longer than expected. In such a
scenario, providers would be exposed to higher-than-expected payout
Longevity worries continue to bother pension funds and insurers as
medical advancements and healthier lifestyles have led to an
increase in the average lifespan. A report by a major reinsurer,
Swiss Re, stated that underestimating life expectancy by just one
year can increase pension liability by approximately 5%.
This trend has made insurance risk transfer crucial as longevity
de-risking would release the capital locked up in such businesses,
thus restoring capital flexibility in businesses, especially in the
current tight economic scenario.
Consequently, providers are keen on finding new ways of managing
their liabilities or transferring risk. Of late, a growing demand
for longevity risk transfer has led to the emergence of other
innovative reinsurance agreements like Longevity Swap transactions
and Cross-Border risk transfer.
Other factors such as a declining interest rate, greater accounting
and regulatory changes as well as larger-than-expected funding
contributions have also increased the risk appetite of pension plan
sponsors. There has been a worldwide increase in pension de-risking
demand with U.K. emerging as the market leader. The country has
approximately £1 trillion in defined-benefit pension scheme
Moreover, Solvency II is also putting pressure on European insurers
to maintain greater capital levels. Reinsurance Group foresees a
growing opportunity in this area.
Prudential Financial Inc.
) is actively participating in risk transfer, with its focus on the
growing pension risk transfer market. Prudential is currently
managing pension obligations of
General Motors Co.
Verizon Communications Inc.
Reinsurance Group carries a Zacks Rank #4 (Sell).
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