Pacific Life Re completes $3bn longevity reinsurance deal with American National

Pacific Life Re has completed a $3 billion longevity reinsurance transaction with American National Insurance Company, taking on the longevity risk tied to $3 billion of pension risk transfer liabilities. The deal marks the Bermuda-based reinsurer's first entry into the US longevity market through its Savings and Retirement business, extending an operation that already writes longevity reinsurance in Britain, the Netherlands and Canada.

Longevity reinsurance transfers the risk that pensioners or other policyholders live longer than expected from the insurer holding the obligation to the reinsurer that assumes it. In pension risk transfer business, that risk runs directly through the liability: an insurer writing a group annuity promises retirement benefits for as long as annuitants live, and unexpected longevity stretches the payment period. The reinsurer takes the other side of that timeline in exchange for premium.

According to the report, the US pension risk transfer market has grown substantially as employers have shifted pension obligations to insurers through group annuity transactions, creating a second layer of demand for reinsurers willing to assume some of the risks the insurers subsequently hold. Pacific Life Re's deal with American National is that demand meeting a reinsurer looking for a new geography.

Group annuity transactions concentrate longevity risk on the insurer's balance sheet, so a larger pension risk transfer market means a larger pool of risk available to reinsurers. For a reinsurer with longevity expertise, the attraction is exposure spread across a broad population rather than triggered by a single event, a different profile from the property-catastrophe risk this desk usually covers.

Phill Beach, executive vice-president of savings and retirement at Pacific Life Re, called the transaction a "milestone transaction," saying it demonstrated the firm's ability to deliver "tailored longevity solutions at scale" and its commitment to supporting pension risk transfer markets and policyholders worldwide. Howie Timothy, assistant vice-president for client solutions in North America at the Savings & Retirement business, said the firm was "very proud" to have partnered closely with American National and looked forward to a continued partnership with the insurer's team.

Pacific Life Re was advised on the transaction by global law firm Eversheds Sutherland, and the reinsurer writes mortality, morbidity and longevity reinsurance, along with asset-intensive and capital solutions, for insurers across Asia, Britain and Europe, Australia and North America.

The $3 billion figure describes the pension risk transfer liabilities whose longevity risk now sits with Pacific Life Re, stated in liabilities rather than premium, with no detail on how the risk is collateralized or what capital stands behind it. For the reinsurer, the achievement is geographic: a first US longevity trade after building longevity books in Britain, the Netherlands and Canada.

American National is the US insurer whose group annuity business generated the exposure, and the structure is the familiar one in which the writer of the pension obligations lays off the risk that annuitants outlive pricing assumptions while the reinsurer takes that risk in exchange for premium. Pacific Life Re already performs that function in Britain, the Netherlands and Canada, which made the US the conspicuous gap in its longevity map.

The deal is a bilateral reinsurance arrangement between two insurers, with no catastrophe bond, sidecar or other capital-markets vehicle, which suggests the longevity risk will sit on Pacific Life Re's own balance sheet rather than be distributed to ILS investors. That is a different use of reinsurance capital from the collateralized structures this desk tracks in property catastrophe, priced on assumptions about how long people live rather than where a storm makes landfall.

Since the group already sells mortality, morbidity and longevity reinsurance into North America, the deal marks a step for Pacific Life Re's Savings and Retirement business—the unit where Beach and Timothy hold senior roles—as a market expansion for one business line rather than a new country for the reinsurer.

The report does not say whether Pacific Life Re has further US longevity transactions in the pipeline or whether American National expects to bring more exposure to the relationship. A completed deal gives both sides a reference point, but it does not yet establish a standing US franchise; for now the entry rests on a single $3 billion transaction with one counterparty, advised by Eversheds Sutherland, and the reinsurer's longevity map has four markets on it.