NN Life transfers €13.5bn of longevity risk in three deals

NN Life, a subsidiary of the Netherlands’ NN Group, has completed three longevity reinsurance transactions with companies Canada Life, Munich Re and Swiss Re associated with €13.5bn of pension liabilities in the Netherlands.

This will reduce NN’s exposure to longevity risk, and consequently reduce the required capital and further strengthen NN’s capital position, the group said. The transactions cover the risks associated with the policies of over 200,000 pensioners and dependants.

The risk transfer is effective as of 1 January 2020, and the reinsurance agreements will continue until the portfolio has run off.

Commenting, NN Group CEO, David Knibbe, said: “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.”

NN’s balance sheet remains strong after the recent volatility in financial markets, it said. The NN Group Solvency II ratio at the end of April 2020 was estimated at approximately 225 per cent. The transactions are expected to increase the NN Group Solvency II ratio by approximately 17 percentage points.

The NN Life Solvency II ratio at the end of April 2020 was estimated at approximately 220 per cent. The transactions announced today are expected to increase NN Life’s Solvency II ratio by approximately 25 percentage points.

The lower risk profile will result in an upfront capital benefit which is reflected in an improved Solvency II ratio, as well as lower future operating capital generation of approximately €90m per annum.

The IFRS operating result before tax will decrease by approximately €30m per annum reflecting the ongoing reinsurance premiums. The negative impact on operating capital generation and the IFRS operating result will decrease over time in line with the maturity of the portfolio.

“We intend to use the strengthened capital position to improve the capital generation profile of NN Life over time and increase the level of its remittances to NN Group as from the second quarter of this year,” the group stated.
Aon advised on the transaction.

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