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Reinsurers Have Traded $60 Billion in Longevity Risk: Rating Agency

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The world’s life reinsurers have already traded large amounts of lifespan uncertainty risk through “longevity swaps,’ and the size of the longevity swaps market is likely to continue to grow.

A team at S&P Global led by Sebastian Dany talks about the rise of longevity swaps in a new review of the world’s life reinsurance market.

The team estimates reinsurers have used longevity swaps to manage annuity obligations and other lifespan-related obligations with a present value of about $60 billion.

(Related: Pension De-Risking Now Has IMF’s Attention)

“We expect to see increasing longevity risk appetite” at life reinsurers, the analysts say.

Much of the appetite could come from the United Kingdom, with additional demand coming from markets such as the United States and the Netherlands.

Reinsurance is an arrangement that insurers use to protect themselves against risk.

A longevity swap is a derivative contract that protects the purchaser against the risk that some people in a pension plan, or some holders of individual lifespan-based arrangements, will live longer than expected.

The market for reinsurance against “biometric risk,” or the risk that life insurance policyholders will die earlier than originally expected, is still bigger, but interest in longevity risk protection is strong, the analysts say.

In the report, the analysts also say that:

  • The three biggest life reinsurance players continue to be Munich Re, Swiss Re and Reinsurance Group of America Inc.  The 2017 gross premium written total was $16 billion at Munich Re, $13 billion at Swiss Re, and $11 billion at RGA.
  • One new wrinkle in markets such as the United Kingdom and the United States is that life expectancies seem to be falling. “It remains to be seen how this will progress,” the S&P analysts write.
  • Norway adopted a “dynamic longevity table” in 2013. Observers expect the table to increase reserving requirements for Norwegian life insurers.

A full copy of the S&P Global report is available here.

— Read What If Annuity Holders’ Life Expectancy Spikes?on ThinkAdvisor.

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