Great-West Life subsidiary, Canada Life Reinsurance (Canada Life Re), has announced a long-term reinsurance agreement with VIVAT, a Dutch insurer, to cover $5.5 billion euros of longevity risk. The agreement affects more than 150,000 in-payment and deferred pensioners.
This longevity insurance transaction (longevity swap) is a risk mitigation solution commonly seen in European pension plans, especially in the United Kingdom. Such transactions are still rare in Canada, but are usually sizable.
Complex and unique risk transfer structures
Jeff Poulin, Global Head of Canada Life Reinsurance, said, “I am pleased to announce this significant reinsurance transaction, which highlights our strength in working effectively with VIVAT to structure a longevity risk solution to efficiently manage their overall risk. This transaction adds to our diverse longevity reinsurance portfolio and demonstrates how, together with Arpian, we create large, complex and unique risk transfer structures backed by our financial strength to benefit our clients.” Arpian is an insurance and reinsurance consultant based in Paris.
Canada-Life Re offers a range of risk and capital management solutions covering mortality, longevity, health and lapse risks for insurers, reinsurers and pension funds across the U.S. and Europe, including the Netherlands, the U.K., France, Germany, Italy, Spain, Portugal, Sweden, Belgium and Ireland.
Canada Life Re is particularly active in Europe. In September 2017, the Reinsurer signed a long-term reinsurance agreement to cover the longevity risk on £1.7 billion ($3 billion CAD) of liabilities for about 7,500 pensioner members of Marsh & McLennan Companies (MMC) UK Pension Fund. This transaction was written by the Barbados branch of Canada Life via a reassurance agreement with Guernsey-based captive insurer cells managed by Marsh Guernsey. “Canada Life Re has completed other transactions in Europe. The Vivat deal is large, but not the largest,” Poulin told Insurance Journal.
Canadian transactions no comparison
Insurance Journal asked Jeff Poulin for more details about the Vivat transaction and how it compares with a 2016 transaction carried out by Canada Life in the Canadian market with Canadian Bank Note. Poulin underlined that both transactions involve longevity insurance, yet the swap with Vivat is much larger than the Canadian Bank Note swap.
“The Vivat transaction with targets Dutch retirees, for about 70% of a contract portfolio valued at €8 billion, while the Canadian Bank Note transaction covers 100% of a Canadian retiree contract portfolio valued at $35 million,” Poulin explains. “The swap with Vivat was negotiated by the reinsurance division whereas that of Canadian Bank Note was orchestrated by the Canada Life Assurance Company (Canada Life). The transaction concerns a block of pension plans at Vivat, which bought back the commitments. It may also foresee the repurchase of other commitments.”
Market size matters
BMO Insurance, a key player in Canada’s pension risk transfer market, says that most transactions in Canada take the form of group annuities. VP & Chief Pricing Actuary, BMO Insurance, Rohit Thomas told Insurance Journal why longevity swaps are still scarce in Canada: “To make one longevity swap, work economically, the transaction has to be very large, because you’re only transacting on the longevity component. With annuities, you’re transacting the whole transaction, which includes assets.”
In 2018, BMO Insurance concluded the largest transaction for a single annuity in its history, at $322 million, Thomas says. He adds that the company collected a total of $780 million in pension transactions in 2018.
An expanding market
In its Pension Risk Transfer Report published in March 2019 on Canadian risk transfer operations, the actuarial firm Eckler confirms that these transactions reached a record level of $4 billion in Canada in 2018, 20% higher than the $3.7 billion in transfers reported in 2017.
The trend appears to be continuing this year. Morneau Shepell recently announced that IA Financial Group and RBC Insurance entered a $333 million group annuity buyout transaction with Navistar Canada.
To learn more about the longevity insurance market, read the special report in the January/February edition of the Insurance Journal.