A subsidiary of NN Group, NN Life, has completed three longevity reinsurance transactions with reinsurers Canada Life, Munich Re, and Swiss Re, transferring the full longevity risk associated with €13.5 billion (USD 14.8 billion) of pension liabilities in the Netherlands.
The arrangements cover the risks associated with the policies of more than 200,000 pensioners and dependants, and serve to lower NN’s longevity risk exposure, while at the same time reduce the required capital and further strengthen the firm’s capital position.
The risk transfer arrangements that have been entered into with Canada Life, Munich Re, and Swiss Re, are effective January 1st, 2020 and the reinsurance arrangements will continue until the portfolio has run-off, explains NN.
David Knibbe, Chief Executive Officer (CEO) of NN Group, commented: “These transactions to transfer a part of our longevity exposure are part of our pro-active risk and capital management approach. We continuously investigate options to optimise our capital structure and to further strengthen our balance sheet, through our product mix, underwriting, asset optimisation and risk transfers.”
For NN Group, these longevity reinsurance arrangements are expected to have some immediate benefits, with the company projecting the transactions to increase its Solvency II ratio by approximately 17%, with the ratio standing at approximately 225% as at the end of April 2020.
The same is true for NN Life, with the transactions announced today expected to increase the subsidiary’s Solvency II ratio by approximately 25%, from the Solvency II ratio of an estimated 220% as at the end of April 2020.
The company highlights that the lower risk profile will result in an upfront capital benefit which is shown in the improved Solvency II ratio, and also reduced future capital generation of around €90 million each year.
In addition, NN states that the IFRS operating result (pre-tax) will decline by around €30 million per annum as a result of the ongoing reinsurance premiums. However, the negative impact on operating capital generation and also the IFRS operating result is expected to decrease over time as the portfolio matures.
The company says that it plans to use the strengthened capital position as a result of these transactions to improve the capital generation profile of NN Life over time, while at the same time increase the level of its remittances to NN Group as from Q2 2020.
For Munich Re, this marks its first significant longevity transaction in the Netherlands, with NN Life insuring €3.8 billion of pension liabilities with the reinsurer. This longevity transaction covers more than 43,000 pensioners and dependents.
Martin Lockwood, Head of Longevity, Munich Re UK Branch, said: “We are very pleased to have delivered a key de-risking solution to NN Life and its customers and to have completed our first, of what we intend to be many, significant international deals. This is a natural addition to our significant UK longevity offering.”
“I’m pleased that despite a significantly altered work environment due to Covid-19, Canada Life Reinsurance and NN Life’s teams worked together to complete this major transaction,” added Jeff Poulin, Global Head of Canada Life Reinsurance. “It will allow us to further expand and diversify our global longevity business in 2020 and beyond.”
Derek Popkes, Chief Operating Officer at Canada Life Reinsurance, also commented: “Canada Life Reinsurance remains focused on delivering for our clients in these challenging times. We look forward to a long and mutually beneficial relationship with NN Life. Our commitment to the Dutch market and our strong financials make us a good partner in the Netherlands.”
This Munich Re transaction was supported with legal advice being provided by Sidleys and NautaDutilh.
Martin Membery, Partner at Sidley Austin, commented: “Lawyers from the Sidley insurance and finance teams have been working seamlessly with Munich Re on the structuring and successful execution of this complex transaction.”
