TITLE• Presentation Points

– Additional Points

– Additional PointsLongevity Panel –Trends and Developments in Longevity Risk Transfer

TITLE• Presentation Points

– Additional Points

– Additional PointsChair - Wayne DanielPanel - Roland Johnson

- Gordon Fletcher- Gavin Jones

Longevity Risk Transfer• Overview of Longevity Risk

– Longevity risk exists in insurers annuity portfolios and defined benefit pension schemes.

– Over the last decade or two, managers have dealt with many other risks, including

asset-liability matchinginterest and inflationequity and credit

using Liability Driven Investment strategies

Pension Funds – De-risking

0

50

100

150

200

250

50 / 30 / 20 / 10 20 / 40 / 30 / 10 0 / 60 / 40 / 0

Equities / Gilts / Credit / Property

EquityRates / InflationCreditPropertyLongevity

Typical pensionscheme

Moving outof equities

Taking only credit andlongevity risk

As pension schemes de-risk eg. by switching from equitiesto bonds, longevity risk looms larger as an issue

TITLE• Presentation Points

– Additional Points

– Additional PointsRoland JohnsonVP, Longevity BenefitsRGA Life Reinsurance Company of Canada

Longevity Risk Transfer

From

Canadian

Viewpoint

8

Why Longevity Now?Demographic and economic environmentsPopulation aging, with significant mortality improvements

Risk of living too long will become more important than risk of dying too soon

Baby boomers moving from active employment to retirement

Low interest rate combined with high volatility equity markets

Canadian Historical Life Expectancies

9

Significant increased over last century

Continuing to increase for both males and females

But slower pace for females since 1975

50

55

60

65

70

75

80

85

1930194019501960197019801990200020052007

FemaleMale

At Birth

Source: Statistics Canada

Canadian Historical Life Expectancies

10

Significant increased over last century

Continuing to increase for both males and females

But slower pace for females since 1975

At Age 65

10

12

14

16

18

20

22

1930 1940 1950 1960 1970 1980 1990 2000 2005

FemaleMale

Source: Statistics Canada

Canadian Mortality Improvement

11

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

0-44 45-64 65-74 75-84 85-89 90-94 95+ All

Male

Female

1991 to 2006 Average Annual Improvements Rates

Source: OSFI – Office of the Chief Actuary

12

Longevity Financial Impacts

Customer’s perspective

Pension Plan’s perspective

Insurer’s perspective

Government’s perspective

13

Longevity Risk Transfer Structures

Pension buy-out or buy-in

Individual payout annuities

Benefit (indemnity) swap

Coinsurance

Coinsurance with funds withheld

Liability swap (Reverse YRT)

Longevity Bonds

Canada

14

Market Size in CanadaRegistered Pension Plans assets: $1,003B in 2009 Life Insurance Industry: $82B

RRSP assets: $371B in 2009 Life Insurance Industry: $86B

Source: CLHIA Annuity Report December 2009

15

Market Size in Canada - Payout Annuities

Source: CLHIA Annuity Report December 2009

$750$1,079

$1,391$1,723 $1,706 $1,550

$1,829$1,586

$351

$773

$1,190

$1,274

$253 $387$184

$258

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

2000 2005 2008 2009 2000 2005 2008 2009

Group

Individual

Annuity RRIF/LIF

Life Insurance Industry - New Premiums

16

Market Size in Canada - Payout Annuities

Source: CLHIA Annuity Report December 2009

$15,805$19,572

$22,944 $24,473

$13,588 $14,350 $15,148 $16,377

$14,560$12,697

$15,536$16,847

$1,157 $1,988 $1,803 $2,083

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

2000 2005 2008 2009 2000 2005 2008 2009

Group

Individual

Annuity RRIF/LIF

Life Insurance Industry - Assets

17

Pension Buy-out & Buy-in

Pension plan pays single premium to insurer

Pension liabilities/risks transferred to insurer

Buy-out:Pension payments directly from insurer to annuitants

Contract between insurer and each annuitant

Buy-in:Pension payments (bulk) from insurer to pension plan

Pension plan continues to pay annuitants

18

Individual Payout Annuities

Contract between insurance company and policyholder

Single premium

Annuity payment Fully guaranteed, or

Guaranteed payment portion combined with variable payment portion that can fluctuate with market, or

Minimum guaranteed payment with potential income growth

19

Longevity Benefit Swap

Premiums = Expected benefit payments (fixed leg) + Risk premium Fixed up front

Payable by Client (Pension plan or Insurance company)

Benefits = Actual benefit paymentsAs per contractual obligation toward policy owner

Payable by (Insurer or Reinsurer)

Net cash flows exchanged

True risk transfer

20

Longevity Benefit Swap

-

0.20

0.40

0.60

0.80

1.00

1.20

1 2 3 4 5 6 7 8 9 10 11

Projected Claims

Premiums

Net Cash Flows

21

Longevity - Risks

Misestimating base mortality

Misestimating future mortality improvements

Mortality volatility

Annuities could continue to be paid to the deceased

Counterparty

22

Canadian Mortality Studies CIA Individual Annuitant Mortality Experience

Coming out soon 1996-2006

Comparing with 1983 IAM Basic Table

CIA currently working to produce Canadian table

Canada Pension Plan Mortality Study

Pension Plan UP94 (US Table)

RP 2000 (US Table )

CIA currently working to produce Canadian table

Canadian Population – Statistics Canada

Longevity Reinsurance Deal - Canada

One large deal done in 201060% of group annuity block of business ($2.5B)

Benefit swap basis

23

TITLE• Presentation Points

– Additional Points

– Additional PointsGordon FletcherRisk adviserMercer

Pension plans and longevity

-1.0%

-0.5%

0.0%

0.5%

1.0%

Impa

ct o

n co

ntri

butio

n ra

te

1 in 100 1 in 4 1 in 4 1 in 100

Baseline risk

Add concentration

riskAdd trend

risk

• Pension plans now more sophisticated in measurement

• Pension plans now more sophisticated in management• Around 12 public longevity deals in the UK• Recent first deal on non-retired members with longevity index• Comparison with US

TITLE• Presentation Points

– Additional Points

– Additional PointsGavin JonesSenior Longevity ActuarySwiss Re

Historic Canadian Male improvements with CLIFR AA scale modification

source: www.mortality.org, , Swiss Re calculationCanadian Institute of Actuaries

Male life expectancy at age 65Risk is systematic in nature

www.mortality.org

“The margin for adverse deviations … should reflect the uncertainty of that assumption and of any related data." – CLIFRCanada Male age 80 – Mortality projection two models

Life expectancy age 65 in years: Lee-Carter model 19.0, Age-Period-Cohort model 21.5, UP94@2020 19.4

source: www.mortality.org, Swiss Re calculation

Where does longevity exposure end up?

RSA

Royal County of Berkshire

BMW

Bank

Written directly by Reinsurer

Bank

£1.9 bn

£1.0 bn

£3.0 bn

Reinsurer capacity is finite …… but there is plenty of it for now.

Total assets backing longevity liabilities worldwide: $20Tr

Reinsurers

Reinsurers

Babcock International Bank£1.2 bnReinsurers

31

Finite capacity, disproportionate demand

Although the bulk annuity market is growing, activity is still small in comparison to the total pensions market

– At the end of 2010 approx GBP 35 billion of pension liabilities had been transferred through bulk annuity buyouts

UK corporate pension liabilities

GBP1.4 trillion

Proportion of UK corporate pension liabilities insured

each year

Under 1%pa

UK Life Companies' annuity reserves

GBP 150bn

There is insufficient capacity in the insurance market to absorb the future demand for longevity risk transfer from UK pension plans alone

Ultimately longevity risk supply greater than capacity of insurance sector

32

Swiss Re has entered into a transaction with Kortis Capital Ltd. ("Kortis") to receive up to $50m of payments in the event of a large increase in the differential in mortality improvements between male lives aged 75-85 in England & Wales and male lives aged 55-65 in the US

First tradable rated security providing protection against longevity trend risk

Trigger is based on a longevity divergence index measuring mortality improvements in England & Wales relative to mortality improvements in the US

Management Highlights"Swiss Re's longevity strategy focuses on providing our clients with indemnity protection, while supporting the development of efficient capital market solutions on an indexed basis as a source of future long-term capacity”

– Brian Gray, Chief Underwriting Officer, Swiss Re

"The Kortis programme is of particular note as it provides protection against adverse deviation in mortality improvements for both Swiss Re’s mortality and longevity portfolios, whilst taking into account the complementary nature of the two risks”

– Christian Mumenthaler, Head Life & Health, Swiss Re

TITLE• Presentation Points

– Additional Points

– Additional PointsLongevity Panel –Trends and Developments in Longevity Risk Transfer