Reinsurance Group Arm to Protect Longevity Risk of BCE

RGA Life Insurance company of Canada, a subsidiary of Reinsurance Group of America, Inc. RGA has been chosen by Sun Life Assurance Company of Canada ("Sun Life"), a subsidiary of Sun Life Financial Inc SLF to reinsure the longevity risk associated with pension obligations held by BCE Inc. ("BCE"). As a communications company, BCE provides broadband communication services to residential and business customers in Canada.

Sun Life has partnered with Reinsurance Group to reinsure longevity risk because of the solid expertise that the latter has in offering compelling long-dated longevity protection solutions.

The company will take care of C$5 billion block of pension obligations, ultimately reducing longevity risks for BCE.

Longevity risk is faced by pension or annuity providers. It refers to the risk of having to make annuity type payments to a retiree for a longer period than priced for, if the person lives longer than expected.

Reinsurance Group foresees a huge opportunity in this pension risk transfer market and is aggressively signing deals to this effect. The company also views longevity risk as a way of diversifying, since it is essentially the flip side of what is traditionally known as mortality risk faced by the company. Mortality risk crops up if an insurer/ reinsurer has to pay a death benefit sooner than expected. Longevity transactions help the company to counter the losses or gains from mortality risk with gains and losses from longevity risk.

Longevity worries continue to bother pension funds and insurers as medical advancements and healthier lifestyles have led to an increase in the average lifespan.

This trend has made insurance risk transfer crucial as longevity de-risking would release the capital locked up in such businesses, thus restoring capital flexibility in businesses, especially in the current tight economic scenario.

Consequently, providers are keen on finding new ways of managing their liabilities or transferring risk. Of late, a growing demand for longevity risk transfer has led to the emergence of other innovative reinsurance agreements like Longevity Swap transactions and Cross-Border risk transfer.

Other factors such as low interest rate, greater accounting and regulatory changes and larger-than-expected funding contributions have also increased the risk appetite of pension plan sponsors.

Moreover, Solvency II also insists that European insurers maintain greater capital levels. Reinsurance Group foresees a growing opportunity in this area.

Insurer Prudential Financial Inc. PRU is another player actively participating in risk transfer, with its focus on the growing pension risk transfer market. Prudential is currently managing pension obligations of General Motors Company GM and Verizon Communications Inc. (VZ), among others.