Managing longevity risk in a changing demographic landscape

We offer many solutions to transfer the longevity risk exposure associated with annuity and pension obligations. 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 reinsurance 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 around future liabilities and can invest their assets accordingly.

Reinsurance plays a critical role in supporting both risk management and capital solutions. Hannover Re works closely with clients to structure customised longevity reinsurance treaties that optimise the client’s capital position. This can be achieved through innovative means, for example by structuring the fee payments. Together with our clients, we find the right solution for financial resilience and long-term risk stability.

Today’s fast-changing economic and demographic environment is creating 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 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 reinsurance 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.

Longevity risk presents major challenges for insurers and pension funds as rising life expectancy increases the cost and duration of retirement liabilities. Defined benefit pension schemes and insurers often underestimate future mortality, leading to underfunded annuity payments and financial strain. Regulatory changes, low interest rates, and legacy liabilities from closed schemes further complicate long-term risk management. Reinsurance solutions such as pension buy-outs and annuity treaties help insurers and pension funds transfer longevity risk, improve financial stability, and manage long-term obligations more effectively.

Our team of experienced actuaries based in Hannover has outstanding project management skills serving longevity business worldwide. They work hand in glove with our local experts, who have extensive knowledge of their respective markets.

Our global expertise in product design, actuarial pricing, and medical underwriting, combined with 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 retirement income products that offer significant benefits but are often misunderstood or underutilised. Hannover Re goes beyond the role of a traditional reinsurer and explores behavioural patterns that lead to biases, especially for annuity products. Common biases 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 considered. State-of-the-art economic models go way beyond the assumption of a rational consumer to model the real world more appropriately.

Over the past years, Hannover Re has hosted on-site seminars across various countries, exploring key topics in longevity. Building on this experience, we have developed a structured series of longevity seminars that continue to deliver valuable insights to our clients worldwide.