UK's Pension Corp Offloads $799 Million in Longevity Risk to Free Capital

(January 20, 2011) — As part of its risk-management strategy, the Pension Insurance Corporation (PIC) has reinsured $799 million of longevity risk to manage risk and better compete for new business.

The move reflects the efforts among insurers to free themselves from risk as a result of pensioners living longer than expected, known as longevity risk. According to some forecasts, more than $24 billion worth of pension risks could be passed on to insurers this year. PIC has said its transactions indicate the insurer’s desire to focus on risk management and on the efficient allocation of capital.

The reinsurance by PIC has been undertaken in two separate transactions, taking the amount of longevity exposure which the firm has reinsured to 70% of its total, or $3.7 billion. “These transactions build on our active longevity reinsurance policy and allow us to efficiently manage our capital,” said Pension Insurance Corporation chief financial officer Rob Sewell in a statement. “We look forward to further transactions of this nature, backing up our promise to bring safety and security to pension fund members’ benefits. We also look forward to writing further transactions this year, in what we expect to be a busy year for the pension insurance market.”

“There has been a lot of interest from pension funds in derisking since the start of the year,” said one industry observer close to the PIC, noting that the insurer expects about £6 billion of insurance business within the first six months of the year. “Because of the way the markets moved last year, a lot of pension funds are better able to afford insurance,” the source told aiCIO. “There’s an increased desire to secure the pension benefits.”

PIC’s effort to raise capital to target deals highlights its aim to compete more effectively in the $4.8 billion to $7.9 billion (£3 billion to £5 billion) transaction market. Though the firm has been trying to raise up to $953 million in fresh capital from new investors since late 2009, it has so far not been successful.