Innovation in the longevity and pension risk transfer market 'must go further'
The global pension risk transfer market has seen a decade of innovation, with more than $280 billion in transaction volume and important breakthroughs. But there is still more work to do, says Amy Kessler, head of Longevity Risk Transfer at Prudential Retirement who recently addressed practitioners, academics and policy makers at the Longevity 12 conference in Chicago.
“What we need in the market are more solutions for pension funds that are not ready for de-risking to help them manage their risky assets, especially given the continued market volatility and low interest rates we’re experiencing,” Kessler says. “Innovation in this space must go further.”
Specifically, Kessler points to such needed-now innovations as adapting pension risk transfer solutions for collective defined contribution schemes, bringing existing de-risking solutions to more countries, creating retirement savings programs for people not covered by workplace plans and streamlining approaches to longevity risk transfer for smaller pension funds.
An equally important area of innovation Kessler predicts will come to the market eventually are insurance and reinsurance sidecars, which are financial structures that allow third-party investors to take on the risk and benefit from the return of specific books of insurance and reinsurance business. These structures are typically set up by existing insurers or reinsurers who want access to alternative capital or want to set up an entity to enable them to accept capital from third-party investors.
“We may be some time off from seeing this innovation come to fruition, but it has many advantages to supplement capacity in the life and pension insurance and reinsurance market using alternative capital," Kessler notes. "While a capacity crunch is not imminent, now is the time to begin the innovation needed to bring alternative capital and other solutions into our markets. If we get this right, European insurers will be able to more cost-effectively offer annuities to individuals.”
Want to speak with Amy? Contact Josh Stoffregen.
Insurance and reinsurance products are issued by either Prudential Retirement Insurance and Annuity Company (PRIAC), Hartford, CT, or The Prudential Insurance Company of America (PICA), Newark, NJ. Both are wholly owned subsidiaries of Prudential Financial, Inc. (PFI) and have no affiliation with Prudential plc of the United Kingdom. Each company is solely responsible for its financial condition and contractual obligations. Neither PRIAC nor PICA are authorized by the U.K. Prudential Regulation Authority or the Financial Conduct Authority, nor do they offer insurance or reinsurance in the United Kingdom. PRIAC and PICA do provide off-shore reinsurance to companies that have acquired U.K. pension risks through transactions with U.K. plan sponsors. PRIAC and PICA are not authorized or regulated by the Office of Superintendent of Financial Institutions for Canada or by the Financial Services Commission of Ontario.
© 2016 Prudential Financial, Inc. and its related entities. Prudential, the Prudential logo, the Rock symbol and Bring Your Challenges are service marks of Prudential Financial, Inc., and its related entities, registered in many jurisdictions worldwide.