The Dutch insurer ASR is looking at the possibility to reinsure its buyouts of pension funds against longevity risk to reduce the negative impact on solvency, according to the firm’s management.
The four buyouts of pension funds that ASR has concluded so far, with a total value of €2.9bn, have reduced the insurer’s solvency by four percentage points, according to a presentation on 20 August given by ASR’s CEO Jos Baeten and CFO Ewout Hollegien.
Between December last year and the middle of this year, through buy-outs ASR took over the liabilities of Pensioenfonds Tandartsen en Tandarts-Specialisten Stichting Pensioenfonds, the €1.6bn Dutch dental fund pension fund, as well as those of the company pensions funds for Coram, Staples and British American Tobacco.
In these buyouts, inflation guarantees were given for the participants.
According to Hollegien, longevity risk reinsurance halves the impact of buyouts on solvency, while it also ensures a higher return on the buyouts themselves.
Longevity risk reinsurance is not uncommon in the Netherlands.
Just last month, NN Life & Pensions reinsured a €4bn pension portfolio (for 96,000 participants) with Prudential Financial. In the past, Aegon and Vivat (the predecessors of Athora, another player in the Dutch buyout market), among others, transferred the longevity risk of part of their own life portfolio to a Canadian reinsurer.
Higher return
ASR’s CEO Baeten noted all four buyouts met the minimum internal rate of return requirement of 12%, in which the annual proceeds of the buyouts are divided by the required invested capital.
Reinsurance would bring the return to a level of 14% or 15%, according to the two directors.
Last year, ASR showed investment analysts how much a buyout yields in euro terms. After an initial negative effect on solvency, €1bn in buyout capital provides a net €10m of capital annually, according to ASR.
According to this logic, the four buyouts would yield the insurer €30m next year. ASR has a goal to eventually raise €8bn in buyouts.
This article was first published on Pensioen Pro, IPE’s Dutch sister publication. It was translated and adapted for IPE by Tjibbe Hoekstra.
