Life Insurer and asset manager Aegon has reinsured another slice of its longevity exposure in the Netherlands with Reinsurance Group of America (RGA), as the company looks to improve the risk profile of its Dutch Life business and release capital at attractive terms.
The new reinsurance agreement offers protection against the longevity risk associated with €7 billion of pension liabilities, including both deferred pensioners as well as in-payment policies of pensioners and dependents.
The risk transfer is effective December 31st, 2021 and will continue until the reinsured block of business has run-off in full.
For Aegon, the reinsurance provides it with protection against the potential adverse financial impact of longevity risk over the full life of the policies at an attractive cost of capital.
This deal with RGA follows a similar longevity reinsurance transaction executed by Aegon in December 2019 with Canada Life Reinsurance.
Combined, these deals mitigate roughly 40% of the longevity risk exposure of the Dutch Life business.
Lard Friese, Chief Executive Officer (CEO) of Aegon N.V., commented: “This longevity reinsurance agreement is another bilateral action taken to maximize the value of our Dutch Life business.
“In line with our strategy, this builds on actions we have previously taken to improve the risk profile of this business and is another step to generate stable, regular, and reliable cash flows from the Dutch Life business.”
The benefit to the Dutch Life business Solvency II ratio is expected to be around 15%-points, which corresponds to an approximate 5%-point increase in the Group’s Solvency II ratio.
Operating capital generation of the Dutch Life business will initially be reduced by €40 million per year and the IFRS operating result will decrease by less than €15 million per year, says Aegon.
Furthermore, the impact on operating capital generation and the operating result will decrease over time in line with the maturity of the reinsured portfolio.
The company expects to raise the regular quarterly remittances of the Dutch Life business from €25 million to €50 million per quarter as of the first quarter of 2022.
Aegon explains that this follows management actions taken over the past year to strengthen the capital position, improve the risk profile, and increase capital generation.
Simon Wainwright, Executive Vice President, Head of EMEA, RGA, said: “We value our long-standing relationship with Aegon, and we are proud to continue to collaborate with them to help them to actively manage their risk and capital position.
“Partnering with our clients to create customized solutions has led to a standout year in the Netherlands, and we look forward to continued growth in our longevity business in continental Europe.”
Allegra van Hövell-Patrizi, CEO of Aegon the Netherlands, added: “RGA is a strategic partner for Aegon globally and in the Netherlands.
“Their local team, with in-depth knowledge of the market supported by their global experts, worked closely with us to tailor the agreement to meet our specific needs, and we appreciate their dedication in executing this transaction.”
