Due to demographic changes and constantly increasing life expectancy, exposure to longevity risk becomes a major issue for insurance companies and pension providers worldwide. Besides providing risk transfer solutions, Hannover Re teams up with partners and clients to support innovative product design that meets the needs of consumers.

In many countries, the retirement system consists of three pillars: state pension, occupational pension and private pension. The risk of a higher life expectancy creates substantial challenges, not only for the consumers who need a secure income for a longer period than expected during retirement, but also for the governments, corporations offering occupational pensions, pension funds and for life insurers who face increasing retirement-related liabilities.

Hannover Re is a global market leader in longevity with an unrivalled track record. We were the first reinsurer in the underwritten annuities market in the United Kingdom in 1995. Since then, Hannover Re has concluded transactions totaling more than EUR 25 billion in the worldwide pensions market and GBP 6 billion in the UK enhanced annuity market (net present value of liabilities). Strategically, our position is to continue to grow in longevity risk and diversify our portfolio by accepting more business on a worldwide basis.

With our experience of almost three decades, we have developed tailored solutions to transfer longevity risk and provided extensive support for our clients. We have a deep insight into mortality and morbidity experience among older lives. This provides us with a sound knowledge base from which to work with clients on developing the next generation of longevity products.

Risk transfer

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.

Capital solutions

Reassurance is paramount in providing risk and capital solutions. Hannover Re assist the client in structuring the reassurance treaty in a tailor-made way to optimise the capital position of their clients. This can be achieved by innovative ways, for example by structuring the fee payments, and at Hannover Re we work closely together with our clients to find the right solution.

Consumer products

Today’s fast changing economic and demographic environment is creating a growing demand for products designed specifically for those reaching retirement. At the same time, it is becoming increasingly clear that traditional product structures do not always serve this older demographic well.

At Hannover Re, we recognise the importance of this market and the diversity of requirements. We are strongly committed to working with our clients to design new and innovative propositions which better position them to meet the needs of individuals at retirement, extend their portfolios, and contribute to a more resilient society for the future.

Our clients benefit from the leading role we have secured through pioneering new approaches in areas such as deferred annuities at retirement, unit-linked annuities, equity release reassurance solutions, parents pocket money protection, immediate needs products and underwritten annuities.

For underwritten annuities, we use medical, socio-economic, and lifestyle factors. Our state-of-the-art automated underwriting system allows for immediate guaranteed quotes and enables Hannover Re and its clients to write business on a profitable basis.

Client support

We have a dedicated team of experienced actuaries based in Hannover, with outstanding project management skills serving longevity business worldwide, working hand in glove with our local experts, with extensive knowledge of the respective markets.

Our global expertise in product design, actuarial pricing and medical underwriting, and our flexibility and openness to exploring new ideas, make Hannover Re a powerful partner for any company seeking to create and maintain a competitive edge when it comes to longevity risk – be it risk transfer solutions or innovative products for an ever-growing consumer group.

The right marketing strategy and approach to consumers is crucial for the success of highly beneficial but unpopular retirement income products. Hannover Re goes beyond the role of a traditional reinsurer and also explores behavioural patterns that lead to biases, especially for annuity products. Typical misjudgements are the underestimation of one’s life expectancy and considering annuities as an investment product. Traditionally, product development is based on local market experience; however, current research on consumer behaviour is rarely taken into account. In particular, state-of-the-art economic models go way beyond the assumption of a rational consumer to model the real world more appropriately.

We support clients in navigating the complexities of longevity risk and help them respond to the challenges that come with it.