Credit rating agency, AM Best has released a report explaining its views on how Pension Risk Transfer is an area in which reinsurers could grow.
It explained that reinsurers have the knowledge and underwriting resources to assume mortality risk, therefore it would be only natural to apply this knowledge to underwrite the longevity side.
Mortality and longevity risks are two offsetting risks, however because the insured populations are different, it will mean that the likelihood of shocking events might not merge in the same way.
Either way, reinsurers have started to invest their interests into the PRT market and AM Best expects this to be an ongoing theme.
AM best predicts that PRT will continue to be the main pure longevity risk opportunity for the segment due to its current lack of popularity single premium immediate annuities and deferred income annuities, coupled with the complexity of variable and fixed income annuities.
Various structures already exist, including coinsurance and longevity swaps, which have been popular in Europe for some time but are now starting to gain traction in the US.
There is uncertainty with regard to longevity risk charges in some capital models, which could trigger direct writers to seek additional capital relief.
Furthermore, the recent swings in the equity markets may have provided a wakeup call to corporate plan sponsors that continue to back a large portion of pension liabilities with equities.
This is likely to serve as a catalyst to transact and increase overall PRT activity.
