I had the pleasure of being interviewed by Life Risk News's Greg Winterton about my views on the recent history of longevity risk transfer markets. In it I expressed the view that, although U.K. and U.S. longevity risk market growth since 2006 (when I first started focusing on these markets) has been impressive, it has almost all been between (re)insurers. Back in 2006, when I was at the International Monetary Fund (IMF) and co-wrote a paper on "alternative" risk transfer markets, I had high hopes that longevity risk transfers to capital markets (e.g., private equity and sovereign wealth funds) would be the next big thing. However, aside from a couple of big Aegon deals in 2012 and 2013, those hopes haven't panned out.
I expressed the view that part of the problem is that longevity risk cedants and their regulators prefer indemnity-based risk transfers in which the contractual cash flows are based on the cedant's actual longevity experience. However, investors prefer contracts based on standardized indices and shorter termination dates. (The Aegon deal cashflows were based on Dutch population longevity data published by the Dutch National Office for Statistics mortality data had a 20-year maturity with a "commutation" mechanism that determined the payment based on then-published longevity data.) But the limited capital markets uptake could be simply that the right transfer instrument hasn't been discovered/developed yet.
The amount of alternative capital in the reinsurance industry has reached another new high at the middle of 2024, with capital allocated to alternative and insurance-linked securities (ILS) structures now reaching $110 billion, according to Aon. [Source: Artemis.bm and https://aon.mediaroom.com/2024-06-27-Favorable-Renewal-in-a-Dynamic-Reinsurance-Market-at-Mid-Year,-Aon-Reports]
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Brookfield, a Canadian investment and insurance firm, is looking to enter the U.K.’s $50 billion-a-year pension risk transfer market, according to an earnings call.
Brookfield is already active in the U.S. pension risk transfer market. In 2023, Brookfield undertook PRT activity in the U.S. at an amount of $3 billion.
The firm’s first-quarter shareholder letter said Brookfield had built a platform with "significant organic growth," and held a top-three position in the U.S. bulk purchase annuity market. Brookfield also identified a "credible path to doubling this business" over the next five years.
