2013 SOA Annual Meeting – San Diego PD 60 - Annuity Risk Strategies Annuity Reinsurance Michael Frings, FSA, MAAA Vice-President and Senior Actuary, Global Financial Solutions RGA Reinsurance Company 2013 SOA Annual Meeting - PD 60 - Annuity Risk Strategies | October 20, 2013
17
Embed
Frings SOA Annuity Risk Strategies Using Reinsurance 2013 Oct 20
Annuity reinsurance is useful for companies to manage annuity risk. This presentation I created for the Society of Actuaries 2013 Annual Meeting in San Diego. I discuss motivtion, opportunites and strategies for annuity reinsurance. I present a numerical case study on coinsurance and longveity swaps to mitiage longevity risk.
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
2013 SOA Annual Meeting – San Diego
PD 60 - Annuity Risk Strategies
Annuity Reinsurance
Michael Frings, FSA, MAAA
Vice-President and Senior Actuary, Global Financial Solutions
RGA Reinsurance Company
2013 SOA Annual Meeting - PD 60 - Annuity Risk Strategies | October 20, 2013
Table of Contents
2
Motivations for Annuity Reinsurance
Opportunities for Annuity Reinsurance
Annuity Reinsurance Strategies
Longevity Swap Case Study
Summary
Motivations for Annuity Reinsurance
3
Premiums/Deposits Flexible Single
Crediting Approach Fixed
Declared Rate Indexed
Variable/Unit-linked
Payout Period Deferred Immediate
Extra Benefits GMDB, GMIB, GMAB, GLWB,
etc.
Features & Motivations
Key annuity features…
4
Key reinsurance motivations…
Support new business VIF monetization Release capital Reduce risk
Movement/Actions… in financial markets, in competitive landscape, by annuity owners, and/or by agents/representatives
Aided by… Product design weak points Ins co management decisions
Result in Missed Expectations of Ins Co Financial Performance Under Statutory, US GAAP, IFRS, Economic, Management reporting
Annuity Risks in General Terms
Manifest in a Cascading Effect of…
5
“Isn’t It Just an Annuity…How Risky Can Those Be?...”
Social Media Awake the Sleeping Annuity Owner Sophisticated Buyers Reputation Re-pricing Limitations Administrative Systems Valuation Systems Projection/Pricing Systems Compliance/Fraud Insurance Company Management Regulatory Actions Rating Agency Actions
Magnified by mis-estimation, mis-prioritzation of risks
7
Opportunities for Annuity Reinsurance
8
Measuring Risks Differences in incidence/frequency. Differences in amounts Differences in length
Reporting Risks Financial Accounting: US GAAP, IFRS, Local Regulatory (e.g. US Stat) Management Accounting: Operating vs Non-operating earnings
Pricing Risks Metrics vary: MCEV, ROE, ROI, ROA, Cost of Funds, Surplus Contribution, etc.
Regulating Risks Local regulatory requirements vary across jurisdictions
Rating Risks Rating agency ratings are important to many—but not all Capital requirements diverge: S&P, Moody’s, Fitch, AM Best, etc.
Opportunities Abound!
Often found when a ‘difference in view’ appears in…
9
Annuity Reinsurance Strategies
Location, location, location… Onshore, offshore Captive Complex mix including SPVs, etc.
Traditional Forms Coinsurance—either with/without funds withheld Modified coinsurance Combination of above
Less-Traditional Forms Non-insurance, financial guarantees Swaps—either as insurance or derivatives
Annuity Reinsurance Strategies
10
Next, a case study in longevity swaps to manage annuity risks…
Client A large corporation in the US Generous defined benefit program upon retirement Plan closed: all participants in payout period