We are offering many different solutions to transfer the longevity risk. The regular premium annuity treaty is certainly the primary solution available to pension schemes and insurance companies only wanting to transfer longevity risk, but no investment risk. A regular premium annuity treaty is a reassurance structure, which involves the client paying a pre-agreed fixed premium cash flow plus an additional fee to the reinsurer. The reinsurer in return pays the annuity payments for the remainder of the pensioners’ lives. Both payments are netted.
The reinsurer assumes both the longevity risk within a book of pensions and the related demographic risk of provisions for dependants. Regular premium annuity treaties do not however cover typical investment risks such as pure inflation or asset management risk.
The uncertain future pension payments are swapped against fixed known payments so that the client has planning reliability about future liabilities and can invest his assets accordingly.