Hannover Re has successfully concluded a block transaction for longevity risks in the United Kingdom. The reinsured portfolio consists of pension obligations assumed by the insurer Legal & General for some 11,500 employees of the UK industrial enterprise Pilkington with a volume of around GBP 1 billion. The portfolio encompasses exclusively persons who are drawing a pension.
The swap transaction hedges the risk that the life expectancy of the pensioners may prove to be higher than anticipated, hence requiring pension payments to be made for a longer period.
"With this transaction we are cementing our leading position in the attractive longevity risks market", Chief Executive Officer Ulrich Wallin explained. "Going forward, too, we anticipate good business opportunities since it is likely that companies will increasingly seek to limit their direct pension obligations."
Hannover Re is to take over the bulk of the business, while the rest will remain with Legal & General. Only the biometric risk is assumed, not the investment and inflation risks.
Hannover Re anticipates premium income of roughly GBP 800 million over the entire term of the transaction, with some GBP 60 million attributable to the 2012 financial year.
For Hannover Re the assumption of longevity risks also forms an attractive part of its risk management since longevity risks are negatively correlated with mortality risks and hence promote better diversification of the portfolio.
Through its involvement in enhanced annuities the company's activities in the area of longevity risks go back as far as the mid-1990s. Since concluding its first longevity block transaction in 1998 Hannover Re has assumed pension obligations totalling altogether around EUR 5 billion, concentrating primarily on the blue-collar workers' segment. Hannover Re accepted its hitherto largest volume of longevity risks in 2010 in connection with a portfolio of pension obligations for employees of the carmaker BMW in the UK.
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