Update on Dutch Longevity and Longevity in Het Nieuwe Pensioenstel

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1 Update on Dutch Longevity and Longevity in Het Nieuwe Pensioenstel André de Vries VP, Business Development, Global Financial Solutions, EMEA De Actuarisdag Zeist - September 26, 2017

2 Reinsurance Group of America Only global reinsurer focused exclusively on the life and health industry Financial Strength Rating of AA- by S&P Offers traditional reinsurance, business development and financial solutions Local presence in the Netherlands 2

3 Dutch Longevity Developments 3

4 Recent Mortality Trends: England & Wales Source: RGA analysis of ONS data 4

5 Recent Mortality Trends Other Countries Source: HMD data, RGA analysis 5

6 Netherlands Mortality Improvements - Male For different ages 8% 6% Age % 6% Age % -8% Quasi AC P-Spline Crude 1 yr Crude 3 yr avg -6% -8% Quasi AC P-Spline Crude 1 yr Crude 3 yr avg 8% 6% Age % 6% Age % -8% Quasi AC P-Spline Crude 1 yr Crude 3 yr avg -6% -8% Quasi AC P-Spline Crude 1 yr Crude 3 yr avg Source: HMD and CBS database 6

7 Netherlands Mortality Improvements - Male For different calendar years 8% 6% Year % 6% Year % -8% Quasi AC P-Spline Crude 1 yr Crude 3 yr avg - -6% -8% Quasi AC P-Spline Crude 1 yr Crude 3 yr avg 8% 6% 8% 6% Year % -8% Year 2014 Quasi AC P-Spline Crude 1 yr Crude 3 yr avg - -6% -8% Quasi AC P-Spline Crude 1 yr Crude 3 yr avg Source: HMD and CBS database 7

8 Netherlands Mortality Improvements - Male Smoothed improvements for different calendar years (1992 to 2016) 5% 3% 1% -1% % 3% 1% -1% % 3% 1% -1% % 3% 1% -1% Source: HMD and CBS database 8

9 62 Netherlands Mortality Improvements - Male -1%- 5% 3% 1% -1% 54-1% 1%- -3% 3%- -5% Source: HMD and CBS database 9

10 Netherlands and UK Mortality Improvements - Male Smoothed improvements for different calendar years (2004 to 2016) 5% 3% 1% -1% NL % 3% 1% -1% NL % 3% 1% -1% UK % 3% 1% -1% UK Source: HMD, ONS and CBS database (UK = England and Wales) 10

11 62 England and Wales Mortality Improvements - Male -1%- 5% 3% 1% -1% 54-1% 1%- -3% 3%- -5% Source: HMD and CBS database 11

62 Netherlands Mortality Improvements - Male -1%- 5% 3% 1% -1% 54-1% 1%- -3% 3%- -5% 17 19

12 62 Netherlands Mortality Improvements - Male -1%- 5% 3% 1% -1% 54-1% 1%- -3% 3%- -5% Source: HMD and CBS database 12

13 Transfer of Longevity Risk 13

14 Decomposing Longevity Risk q x Volatility q x Starting Mortality q x Mortality Improvements time age age 14

15 Main Challenge in Transferring Longevity Risk Price can often be decomposed in three parts: 1. Starting Mortality Rates 2. Mortality Improvement Rates 3. Compensation for Capital and Costs Actual versus Perceived Costs: Catch-Up Premium Premium - Periodic Cash Flow under Longevity Swap Actual Costs Catch-Up Premium Perceived Costs 15

16 Longevity Indemnity Reinsurance Longevity Swap Indemnity reinsurance contract, but swap is helpful analogy Premiums = Expected Annuities + Loading ( fixed ) Benefits = Actual Annuities ( floating ) based on survival of annuitants Policyholders Actual Annuities (floating) Ceding Company Expected Annuities + Loading = Premiums (fixed) Actual Annuities = Benefits (floating) 16

17 Cash Flows under Longevity Reinsurance (Swap) Impact of different mortality scenarios Paid by RGA Premiums Expected Benefit Payments Benefits in case of -2 mortality rates Benefits in case of +2 mortality rates Net Cash Flow in case of -2 mortality rates Paid by Cedant Net Cash Flow in case of +2 mortality rates 17

18 Shorter Term Longevity Solution Future Value of Past Annuities 2. Present Value of Future Annuities Best Estimate Annuities Higher Mortality Lower Mortality Risk Cover Period Future Years 18

19 Cover of Mortality Development Defining Attachment and Detachment Points Three examples Longevity Benefit Attachment Points Detachment Points LSA 1 LSA 2 LSA 3 5% 1 15% 2 25% 3 Cumulative Change in Mortality Rates Best Estimate Mortality Reducing Impact of Catch Up -Premium but also of Capital Benefit 19

Mortality Rates for Attachment and Detachment Point Scenarios during Risk Cover Period; Mortality Projection beyond Risk Cover Period 0,00 Calibration Period Realized Best Estimate Start Estimate

20 Mortality Rates for Attachment and Detachment Point Scenarios during Risk Cover Period; Mortality Projection beyond Risk Cover Period 0,00 Calibration Period Realized Best Estimate Start Estimate Start SII Longevity Shock (full term) Attachment Point Detachment Point Attachment Point (in sample) Detachment Point (in sample) 0,0045 0,0040 0,0035 0,0030 0, % 15% 0,0020 5% 5% 0,0015 0,0010 0,0005 Risk Cover Period ,

21 Langlevenrisico in Het Nieuwe Pensioenstelsel 21

22 Macro-langlevenrisico := Risico dat gehele populatie ouder wordt dan verwacht Impact schok macro-langlevenrisico op pensioeninkomsten Bron: Willis Towers Watson (SER Verkenning Mei 2016, figuur 2.1, p29) 22

23 Beheren van Macro-langlevenrisico Verschillende mogelijkheden voor beheren van langlevenrisico: 1. Externe herverzekering 2. Ruilen (swap) binnen het collectief Tot welke leeftijd? Hoogte van de premie? [Maximum dekking?] 3. Uitsmeren in de tijd Levensverwachtingsaanpassingsmechanisme (LAM) Of combinaties? 23

24 Combineren van verschillende mogelijkheden? Herverzekeren, Ruilen en/of Uitsmeren Voorbeelden van combineren: Herverzekeren (gedeelte) van gepensioneerden? Ruilen of uitsmeren met een maximum en dan restant herverzekeren? Gedeeltelijk herverzekeren om premie vast te stellen? Andere combinaties? 24

25 Bedankt voor jullie aandacht! Vragen, opmerkingen, feedback? André de Vries 25

26 2017 RGA. All rights reserved. No part of this publication may be reproduced in any form without the prior permission of RGA. The information in this publication is for the exclusive, internal use of the recipient and may not be relied upon by any other party other than the recipient and its affiliates, or published, quoted or disseminated to any party other than the recipient without the prior written consent of RGA.

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