As per a media release, MetLife Inc. MET along with Massachusetts Mutual Life Insurance Co. will reinsure longevity risks associated with pension obligations held by PPG Industries, a manufacturer of paints and coatings.
PPG has chosen MetLife to reinsure its longevity risk because of its expertise in offering compelling propositions for long-dated longevity protection solutions.
MetLife and Massachusetts Mutual will take care of $1.6 billion block of pension obligations of nearly 13,400 of PPG’s salaried and non-union hourly retirees or their survivors, ultimately reducing longevity risks. All the future annuity payments will be made by MetLife and Massachusetts Mutual.
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, in case the person lives longer than expected. Corporations are also finding it difficult to manage their pension obligations given the low interest rates and tepid economic growth and are therefore increasingly turning to insurers to offload their pension liabilities.
MetLife, an expert in managing transferred pension liabilities, helps its customers to remain secure in the belief that their risks are managed and their retirees’ and beneficiaries’ pensions are protected. This helps its customers to concentrate on their core business. The company aims at reducing PPG’s risk and volatility related to managing the pension plan, thereby creating value for its shareholders.
Also, MetLife foresees a huge opportunity in this pension risk transfer market. 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 refers to the risk that an insurer/ reinsurer has to pay as a death benefit sooner than expected.
Longevity transactions help the insurers counter losses or gain from mortality risk with gains and losses from longevity risk. MetLife also manages pension liabilities of TRW Automotive Holdings Corp’s subsidiary, TRW.
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 a tight economic scenario like what we are experiencing now.
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 the likes of General Motors Company GM and Verizon Communications Inc. VZ.
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