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Longevity 15: Fifteenth International Longevity Risk and Capital Market Solutions Conference

Longevity 15: Fifteenth International Longevity Risk and Capital Market Solutions Conference. Professor David Blake Director Pensions Institute Cass Business School d.blake@city.ac.uk September 2019. Previous conferences. Longevity 8: Waterloo 2012 Longevity 9: Beijing 2013

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Longevity 15: Fifteenth International Longevity Risk and Capital Market Solutions Conference

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  1. Longevity 15: Fifteenth International Longevity Risk and Capital Market Solutions Conference Professor David Blake Director Pensions Institute Cass Business School d.blake@city.ac.uk September 2019

  2. Previous conferences • Longevity 8: Waterloo 2012 • Longevity 9: Beijing 2013 • Longevity 10: Santiago 2014 • Longevity 11: Lyon 2015 • Longevity 12: Chicago 2016 • Longevity 13: Taipei 2017 • Longevity 14: Amsterdam 2018 • Longevity 1: London 2005 • Longevity 2: Chicago 2006 • Longevity 3: Taipei 2007 • Longevity 4: Amsterdam 2008 • Longevity 5: New York 2009 • Longevity 6: Sydney 2010 • Longevity 7: Frankfurt 2011

  3. Developments in 2018 • £24bn buy-outs + buy-ins in UK pension funds in 2018 • £9.7bn buy-outs versus £14.5 billion of buy-ins • Up from £12bn in 2017 • Main players: • Legal & General, Pension Insurance Corp (PIC), Aviva, Scottish Widows, Just • £120bn since 2006 • £7bn of longevity swaps in 2018 • £70bn since 2007 • Solvency II raised cost of buyout by 5-7% • US buy-outs + buy-ins since 2012 • 2,170 deals valued at $139bn (only 15 buy-ins)

  4. Developments in 2018 • Average UK pension fund now 100% funded, making de-risking deals more affordable • Prudential Retirement executed $2.6bn longevity reinsurance contract in UK covering 16,000 pensioners • $60bn since 2011 • L&G executed a £4.4bn buy-in with British Airways • L&G executed a £2.4bn buy-out with Nortel • PIC executed a £1.5bn buy-out with Rentokil • PIC executed a £1.3bn buy-in with Siemens • Phoenix Life purchased insurance arm of Standard Life Aberdeen, including around £5bn of annuity liabilities

  5. Developments in 2018 • UK longevity swaps: • £2bn: National Grid with Zurich • £2.4n: LaFarge with Munich Re • £0.3bn: Unnamed with L&G • £1.2bn: SCOR with PIC • Main reasons for increased activity: • Increased affordability due to: • Strong equity returns • Rising interest rates • Lower mortality improvements • Increased competition from insurers

  6. Developments in 2019 • Longevity swaps: • RGA, covering 45,000 Manulife Canadian annuitants (February) • PartnerRe, covering 25,000 Manulife Canadian annuitants (March) • €5.5bn: Canada Life Re, covering 150,000 in-payment and deferred pensioners liabilities of Dutch firm VIVAT (March) • £7bn: Prudential (PICA), covering HSBC’s UK pension fund (August) • via Bermuda-based captive insurer • 2nd largest deal in UK since £16bn BT deal in 2014 • L&G, covering 120 retired and deferred Hitachi Data Systems members with max (DB,DC) pensions (August) • PICA launches reinsurance counterparty to support insurers in the UK pension risk transfer market (August)

  7. Innovation I: Tail-risk protection (or longevity bull call spread) • Five publicly announced deals to date: • All involving Dutch insurers, but could apply elsewhere • Two involved Aegon: • one in 2012 was executed by Deutsche Bank • another in 2013 by Société Générale • Two involved Delta Lloyd and RGA Re in 2014 and 2015 • Most recent occurred in December 2017 between NN Life and Hannover Re

  8. Innovation II: Re-insurance sidecars • Financial structure established to allow external investors to take on the risk and benefit from the return of specific books of re-insurance business • It is typically set up by: • existing re-insurers that are looking to either partner with another source of capital • an entity to enable re-insurers to accept capital from third-party investors • Athene/Voya: $19bn annuities (Dec 2017) • RGA Re and RenaissanceRe set up Langhorne Re to target in-force annuities (Jan 2018) • PGGM/ Munich Re set up Leo Re (Feb 2018)

  9. Since 2007, there have been more than $430 billion in pension risk transfer transactions in the US, UK and Canada alone $25 billion Canada All Transactions $107 billion U.K. Longevity Risk Transfer $160 billion U.K. Buy-outs and Buy-ins $142 billion U.S. All Transactions Data in USD billions. Cumulative totals. Sources: LIMRA, Hymans Robertson, LCP and Prudential analysis as of December 31, 2018.

  10. Looking ahead • UK forecasts for 2019 (WTW): • £25bn+ in buy-in/outs (£17bn in H1) • £700bn over next 15 years • £10bn in longevity swaps • Kessler (Prudential): Longevity risk transfer demand shows no signs of slowing • Club Vita: Capital markets can plug any gaps in longevity reinsurance or risk transfer capacity, with index-based longevity hedging likely to become the focus • But capacity constraints: • Human resources, e.g., skilled lawyers • Limited availability of illiquid assets to back the liabilities • e.g., ground rents, education loans and infrastructure assets

  11. Individuals do not understand longevity risk • Introduction of ‘freedom and choice’ in UK in April 2015 • retirees with DC pots no longer need to annuitise • Retirees with DB pots can switch to DC and take lump sum • £16bn withdrawn since 2015 • Often held in bank accounts, depressing interest rates • Every quarter, 200,000 retirees are withdrawing a total of £1.5bn per quarter • ‘No sign of slowing’ • 60% of retirees with guaranteed annuity rates have surrendered them in order to access the lump sum • Losing 40-80%

  12. What needs to happen at L15 • Continuing with our strategy of bringing together practitioners, academics, regulators and policy makers from a variety of relevant disciplines • Extending our community to include pension plan sponsors with significant longevity risk asset exposure from different countries • Also raising awareness of longevity risk generally

  13. What needs to happen at L15 • Key themes of Longevity 15: • mortality trends and forecasts • longevity risk and inequalities • longevity hedging solutions • sustainability of pension systems • financial wellbeing • life settlements • Special issue of Insurance: Mathematics & Economics

  14. Longevity 15 The Fifteenth International Longevity Risk and Capital Markets Solutions Conference, Washington DC, 12-13 September 2019 SPONSORS Platinum Gold Silver https://www.cass.city.ac.uk/faculties-and-research/centres/pensions-institute/events/longevity-15/sponsors

  15. Hosts Many thanks to Mike Fasano’s team, Katrina Mbaye and Marilyn Parris-Bell & Sharmila Harris

  16. Longevity 16The Sixteenth International Longevity Risk and Capital Markets Solutions Conference, Singapore, 10-11 September 2020 Special issue of Journal of Demographic Economics

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