Category Archives: Longevity

LONDON, Feb 17 (Reuters) - Dutch life insurer Aegon (LSE: AGN.L - news) has struck a 12 billion euro ($15.65 billion) deal with Deutsche Bank (Xetra: 514000 - news) to protect itself against the financial impact of customers living longer than expected, the biggest such transaction in Europe (Chicago Options: ^REURUSD - news) .

Under the deal, Deutsche Bank is taking a fee to cover the cost of unforeseen increases in the lifespan of Aegon customers accounting for 12 billion euros of reserves, about one third of the insurer's Dutch business, the two companies said on Friday.

Deutsche Bank has in turn passed on most of the risk to capital market investors through private bond and swap placements.

Such deals are tipped for strong growth as unexpected increases in pensioner lifespans, fuelled by medical advances and lifestyle changes, inflict potentially crippling extra costs on insurers and pension funds.

"We believe this market will continue to grow as insurance companies and pension funds look at new ways to manage their liabilities while investors seek diversified investment opportunities," said Clare Hennings, Deutsche Bank's head of structured insurance solutions.

In November, Deutsche Bank provided protection from longevity increases on 3 billion pounds ($4.72 billion) of liabilities in British aero engine maker Rolls Royce (LSE: RR.L - news) 's pension fund.

British life insurer Legal & General (LSE: LGEN.L - news) and reinsurer Hannover Re last month agreed a 1 billion pound longevity transfer deal for British glass maker Pilkington's staff pension scheme.

Britain's pension risk transfer market, where companies pay insurers or banks to shoulder some of the investment risk associated with their retirement schemes, reached a record 9 billion pounds last year, according to pension consultants Hyman Robertson.

Separately on Friday, Aegon said it missed fourth-quarter profit estimates after taking several one-off charges and expected the euro zone crisis to continue to affect the economy and financial markets. ($1 = 0.7668 euros) ($1 = 0.6350 British pounds) (Reporting by Myles Neligan; Editing by Jon Loades-Carter)

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Aegon clinches record longevity protection deal

February 17, 2012, 8:44 AM EST

By Maud van Gaal

(Updates to add longevity swap and analyst comments, starting in third paragraph.)

Feb. 17 (Bloomberg) -- Aegon NV, the Dutch owner of U.S. insurer Transamerica Corp., reported a 75 percent decline in fourth-quarter profit on reorganization costs and lower investment returns from equity markets and interest rates.

Net income fell to 79 million euros ($106 million) from 318 million euros a year earlier, the Hague-based insurer said today. The firm had 194 million euros in charges, including 48 million euros related to U.K. insurance policies.

The shares rose as the insurer said it completed a swap with Deutsche Bank AG to protect the firm against the risk of pensioners living longer than expected. Aegon, which makes most of its profit in the U.S., repeated that it aims to increase underlying pretax profit by 7 percent to 10 percent a year on average until 2015 and to post a return on equity of 10 percent to 12 percent.

“It’s positive that longevity risk has been reduced in the Dutch book,” Albert Ploegh, an Amsterdam-based analyst at ING Groep NV, wrote in a note today. “After several insurers had to take charges on the back of increased longevity, Aegon now appears to have tackled this issue.”

Shares of Aegon, whose Pyramid building is a landmark in San Francisco’s financial district, jumped as much as 7 percent in Amsterdam today. They were up 6.3 percent to 3.97 euros at 11:50 a.m. local time, giving the company a market value of 7.6 billion euros. That outpaced the 1.1 percent advance in the 28- company Bloomberg Europe 500 Insurance Index.

No Acquisitions

Aegon doesn’t plan a share buyback or acquisitions at this point, Chief Executive Officer Alex Wynaendts told analysts on a conference call today. He plans to continue a strategy of maintaining a strong capital position as market volatility will likely persist in coming years, even as the “bottom of the euro crisis is probably behind us.”

Profit missed the average estimate of 209 million euros in a Bloomberg survey of 10 analysts. Aegon said today it proposed a 2011 dividend of 10 cents per share, as the company had previously indicated. It would be the company’s first payout since 2008, when it took state aid during the financial crisis.

“The fourth-quarter result was mainly affected by one-off charges which we do not expect to occur in 2012,” Lemer Salah, an Amsterdam-based analyst at SNS Securities, said in a note. “We believe that the company is well positioned to achieve its objectives in the U.S. and Netherlands.”

Longevity Swap

Wynaendts said Aegon may do more transactions like today’s longevity swap, which will see Deutsche Bank protect 12 billion euros, or one-third of the reserves in the Dutch business. “The transaction reduces required capital at an attractive cost,” Aegon said.

The risk of pensioners living longer will be borne by investors rather than Deutsche Bank, the German bank said in a separate statement. It is the first transaction to place such risk wholly in the capital markets, it said.

In 2011, Aegon set aside 82 million euros to cover life- expectancy risks in the Netherlands, Wynaendts said in an interview today. The transaction today helps the insurer increase its capacity on the Dutch pension market.

Aegon’s value of new business, a measure of projected future profitability of new policies, fell 59 percent to 53 million euros in the fourth quarter. That is unsurprising given “the historic low interest rates” in the insurer’s key markets, Wynaendts told reporters on the call.

U.K., Dutch Charges

Underlying pretax profit, which excludes investment swings, fell 23 percent to 346 million euros, almost matching the average estimate of 347 million euros in a Bloomberg survey of 12 analysts. Earnings on this basis fell 17 percent in 2011.

In the Netherlands, Aegon wrote down 75 million euros on its distribution business in anticipation of a ban on commissions in life and pension products starting in 2013, Wynaendts said. The U.K. charges, which were related to fixing administrative errors, exceeded the estimate of Cor Kluis, an analyst at Rabobank International.

“With all these charges for the U.K. taken, the year 2012 should be a normal profit level,” Kluis, based in Utrecht, the Netherlands, said in a note.

Aegon’s profit goals rely on assumptions including a 4.75 percent U.S. 10-year bond yield for 2016, which is more than double the current 2 percent rate.

The U.S. Federal Reserve said last month that it sees “exceptionally low” interest rates through 2014, having previously pledged to refrain from raising borrowing costs until at least the middle of 2013. Insurers suffer from lower long- term interest rates as they hold back returns from bond investments and increase future liabilities.

--With assistance from Martijn van der Starre in Amsterdam and Kevin Crowley in London. Editors: Keith Campbell, Steve Bailey.

To contact the reporter on this story: Maud van Gaal in Amsterdam at mvangaal@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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Aegon Profit Falls on Charges; Shares Rise on Longevity Swap

How long will you live? To you, of course, the answer matters. But it matters, too, to insurers and to pension funds, to nursing homes and hospitals and to every provider of goods and services that you may want or need as you grow older.

Longevity affects so many different industries that SmartMoney, in a current article, says it lays behind "the $27 trillion question."

Notions about life expectancy and aging have been changing rapidly.

SmartMoney cites the case of a 78-year-old woman trying to buy life insurance. She's a survivor of breast cancer. Her family has a history of heart disease (her father died of a massive heart attack in his 60s). She suffers from bipolar disease, for which she takes medication.

She wants a $20 million policy.

Does she get it? You bet -- and from a household name insurer. A few years ago, she might not have; but medical advances have now made her an attractive customer. Her life expectancy is 92.

Every year in the insurance industry, one set of actuarial tables gets thrown out and is replaced by an updated one that determines how much you'll pay for life insurance -- or whether you'll get it at all. Not every company goes about revising its tables the same way.

"There's considerable variation," says S. Jay Olshansky, a researcher in the University of Illinois' School of Public Health.

Most insurers, in his view, go about it the wrong way. The prevailing method, he says, is "to take historical trends in life expectancy and project them forward. That's easy to do."

It fails to take into account the health status of persons now alive, who will "exhibit mortality" in the future.

Factoring in the health status of persons still alive "is not an easy thing to do," Olshansky says. "It's not how actuaries are taught to make forecasts."

Dr. Robert Pokorski, chief medical strategist for The Hartford, goes about it differently, factoring in not just past trends but the latest scientific research and medical treatments.

At The Hartford, advanced heart disease is no longer regarded as a "death marker." As recently as 1995, the industry viewed people with advanced heart disease as uninsurable. Now, arterial blockages can be repaired, and new plaque buildup prevented with medicines. The Hartford's latest tables reflect those advances.

Maddy Dychtwald, an expert on aging and co-founder of the trend-watcher AgeWave in California, says there's no longer any reason to think of life expectancy as bound by mere chronology.

"It's not necessarily a question of how many years you've racked up," she says. "Somebody aged 78 can have the vitality of a 52-year old. You need to dig deeper, past chronology down into other health factors."

People aren't only living longer. Many are living more healthfully.

Baby boomers, whom AgeWave tracks, get more exercise than any other generation, Dychtwald says. Makers of goods and services aimed at older Americans need to take that into account.

Many have already. The Hartford, MetLife and a variety of other insurers and financial services companies have tailored new products to middle-aged customers worried, justifiably, they may live longer than they planned and, thus, exhaust their savings prematurely.

MetLife in 2004 introduced an annuity called the Longevity Income Guarantee, which starts paying at age 85 and keeps on paying for as long as the client lives. The Hartford has a competing product called the Longevity Access Rider.

Life expectancy predictions, however, in order to be accurate, need to factor in the negative, as well.

"Every once in a while," says Olshansky, "a novel source of data surfaces that makes it possible to peer into the future in a fundamentally different and far more revealing way."

Case in point: a study of 3,237 young Minnesotans who died between 1981 and 2004. Their autopsies revealed that while the severity of coronary heart disease had declined from '81 to '95, the trend had reversed itself after 2000, owing to an increase in obesity, among other factors.

Insurers and other longevity predictors, he says, make a mistake not to consider negative lifestyle factors. The Minnesota data, in his view, offers "a glimpse into the future of heart disease" in tomorrow's adults.

Unlike many of his peers, he does accept it as a given that tomorrow's Americans will live longer than today's. More likely, he thinks, they will hit a "longevity wall" at age 85.

Even if science were to find a cure for cancer and for heart disease, Olshansky says, the average human lifespan won't advance beyond 90, unless someone finds a way to slow the aging process itself.

That search is underway at a variety of laboratories around the country, including at Sierra Sciences in Reno, Nev. Sierra's motto: "To cure aging or die trying."

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The $27 Trillion Question: How Long Will You Live?

Prudential Retirement, a unit of Prudential Financial Inc. ( PRU ) has extended its partnership with U.K.-based Rothesay Life, a wholly-owned subsidiary of The Goldman Sachs Group Inc. ( GS ), as a reinsurance partner for its pension-related longevity risk. The agreement is the first reinsurance transaction for Prudential in 2012.

The transaction is intended to cover pension liability values worth approximately $665 million. The reinsurance contracts secure the retirement benefits of Uniq Plc Pension Scheme members, those who have been insured by Rothsay Life. These contracts will be issued by Prudential Retirement Insurance and Annuity Company, Hartford, CT.

Prudential started providing coverage on longevity risk last year and had provided coverage of approximately $723 million to Rothesay Life and Paternoster. This was the largest longevity transaction announced so far by the company. The company was also chosen by Deutsche Bank ( DB ) as a reinsurance partner to transfer $780 million of longevity risk of Deutsche Bank Rolls-Royce Pension Fund.

Longevity risk is faced by pension or annuity providers. It is an indication that customers may live longer than expected. In such a scenario, providers would be exposed to higher-than-expected payout ratios.

Longevity worries continue to bother pension funds and insurers as medical advancements and healthier lifestyles have led to an increase in the average lifespan. A report by a major reinsurer, Swiss Re, stated that underestimating life expectancy by just one year can increase pension liability burden by approximately 5%.

This trend has made insurance risk transfer very important as longevity de-risking would release the capital locked up in such businesses, thus restoring capital flexibility for businesses, especially in the current tight economic scenario.

Consequently, providers are keen on finding new ways of managing their liabilities or transferring risk. Of late, a growing demand for longevity risk transfer has led to the emergence of other innovative reinsurance agreements like Longevity Swap transactions and Cross-Border risk transfer.

Other factors such as a declining interest rate, greater accounting and regulatory changes and larger-than-expected funding contributions have also increased the risk appetite of pension plan sponsors. There has been a worldwide increase in pension de-risking demand with U.K. emerging as the leading market. The country has approximately $1 trillion in defined-benefit pension scheme liability.

Moreover, Solvency II is also pressurizing European insurers to maintain greater capital levels. Prudential foresees a growing opportunity in this area.

On the other end of the spectrum, Prudential, which runs a significant mortality risk due to its niche presence in the life insurance market, is planning to counter the losses or gains from this risk with gains and losses from longevity risk.

If longevity systemically improves, there would be fewer mortality claims. This would eventually improve profitability and help offset losses in the longevity business. Conversely, if the mortality portfolio shows an increase in the number of deaths, there should be an offsetting profit from longevity risk.

 
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PRU Expands Longevity Risk Biz - Analyst Blog

Prudential Retirement, a unit of Prudential Financial Inc. (NYSE:PRU - News) has extended its partnership with U.K.-based Rothesay Life, a wholly-owned subsidiary of The Goldman Sachs Group Inc. (NYSE:GS - News), as a reinsurance partner for its pension-related longevity risk. The agreement is the first reinsurance transaction for Prudential in 2012.

The transaction is intended to cover pension liability values worth approximately $665 million. The reinsurance contracts secure the retirement benefits of Uniq Plc Pension Scheme members, those who have been insured by Rothsay Life. These contracts will be issued by Prudential Retirement Insurance and Annuity Company, Hartford, CT.

Prudential started providing coverage on longevity risk last year and had provided coverage of approximately $723 million to Rothesay Life and Paternoster. This was the largest longevity transaction announced so far by the company. The company was also chosen by Deutsche Bank (NYSE:DB - News) as a reinsurance partner to transfer $780 million of longevity risk of Deutsche Bank Rolls-Royce Pension Fund.

Longevity risk is faced by pension or annuity providers. It is an indication that customers may live longer than expected. In such a scenario, providers would be exposed to higher-than-expected payout ratios.

Longevity worries continue to bother pension funds and insurers as medical advancements and healthier lifestyles have led to an increase in the average lifespan. A report by a major reinsurer, Swiss Re, stated that underestimating life expectancy by just one year can increase pension liability burden by approximately 5%.

This trend has made insurance risk transfer very important as longevity de-risking would release the capital locked up in such businesses, thus restoring capital flexibility for businesses, especially in the current tight economic scenario.

Consequently, providers are keen on finding new ways of managing their liabilities or transferring risk. Of late, a growing demand for longevity risk transfer has led to the emergence of other innovative reinsurance agreements like Longevity Swap transactions and Cross-Border risk transfer.

Other factors such as a declining interest rate, greater accounting and regulatory changes and larger-than-expected funding contributions have also increased the risk appetite of pension plan sponsors. There has been a worldwide increase in pension de-risking demand with U.K. emerging as the leading market. The country has approximately $1 trillion in defined-benefit pension scheme liability.

Moreover, Solvency II is also pressurizing European insurers to maintain greater capital levels. Prudential foresees a growing opportunity in this area.

On the other end of the spectrum, Prudential, which runs a significant mortality risk due to its niche presence in the life insurance market, is planning to counter the losses or gains from this risk with gains and losses from longevity risk.

If longevity systemically improves, there would be fewer mortality claims. This would eventually improve profitability and help offset losses in the longevity business. Conversely, if the mortality portfolio shows an increase in the number of deaths, there should be an offsetting profit from longevity risk.

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PRU Expands Longevity Risk Biz

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New toys are looking to capitalize on the high-tech market with unique takes on the iPad and Android devices. NY1’s Adam Balkin filed the following report.

No matter how cool a new toy is, oftentimes a child would likely still pick up a device like an iPad or iPod Touch if given the choice. So it's no wonder so many developers at the American International Toy Fair are using devices like iPads or iPod Touches as part of their new toys.

Mattel is launching a new line of what it's calling Apptivity Toys, physical toys you hold in your hand that interact somehow with companion apps.

“Every toy is unique and designed for the brand for the game, so whether it's Barbie, where you're unlocking potentially parts of a closet, or Hot Wheels, where it's a challenge or a race or a quest or accumulate points and unlock things,” says Chuck Scothon of Mattel.

Out this fall, they range from about $10 to $20 apiece.

The $50 TeeGee out this summer is a more traditional toy, but where it breaks from tradition, you stick an iPhone or iPod Touch in its back and it becomes the brains of the monkey, so to speak.

“You're able to download age appropriate apps, so as your child gets older, you can evolve the experience for your child and you don't have to buy other toys. You can sing songs with TeeGee, arithmetic, Spanish, English, grammar,” says Christopher Ahn of TeeGee.

Or finally, if it's just the actual tablet or smartphone your kids want but you don't want to give them yours, the Kurio is a fully functioning Android tablet for kids.

The only thing that really makes it different from other Android tablets on the market is that parents can pretty much control every single thing their kids do on it. Parents set up profiles for up to eight users and then each user gets certain rights. For starters, parents can determine what types of websites can be visited.

“We have an online service that will everyday update inappropriate sites for kids and families, and by category, you can determine based on your own value system which categories are appropriate for your child,” says Eric Levin of TechnoSource.

You can also designate which user can access which apps. Kurio is out early summer for about $200.

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Toy Makers Give New Products Longevity Through Apps