The Lemon Fool

Interesting article in the latest Investors Chronicle about Life Insurers.

I had not realised that since 2016 they had been forced to reinsure long-tail longevity risk externally at an estimated ‘cost’ to profit of £9 bn due to the EU’s Solvency II directive.

Following Brexit the rules may be changed so they don’t have to do this. It is estimated this could lead to a one off 12% gain in the book value of M&G. The impact on Aviva and L&G is less clear but substantial.

I suppose this means Life Insurers may become more profitable but somewhat riskier?

scrumpyjack wrote:
Interesting article in the latest Investors Chronicle about Life Insurers.

I had not realised that since 2016 they had been forced to reinsure long-tail longevity risk externally at an estimated ‘cost’ to profit of £9 bn due to the EU’s Solvency II directive.

Following Brexit the rules may be changed so they don’t have to do this. It is estimated this could lead to a one off 12% gain in the book value of M&G. The impact on Aviva and L&G is less clear but substantial.

I suppose this means Life Insurers may become more profitable but somewhat riskier?

The Investors Chronicle article is available via this search link for those interested to read it in full -

https://www.google.com/search?&q=investors+chronicle+life+insurers

Cheers,

Itsallaguess

I was interested to read that as well. I doubt very much for an insurer like Legal & General that it will make their portfolio much riskier. They at least, have the financial strength to retain this risk. When you get to the size of L & G this is to my mind a quite unnecessary outgoing of cash which would be better retained in the business. They are just as capable as most other insurers of calculating the risk and adjusting their reserves accordingly. In fact they might even lose some business since if the unwinding was widely adopted they would probably lose some incoming reinsurance from other companies.

Aviva, at least until they started their sell off of some businesses, was more at risk as they are probably not as strong financially. Phoenix Group is probably more like Aviva than Legal & General, but we need to trust that the companies themselves are able to judge the best course of action, and all of this in any case depends on their UK regulator being prepared to cut loose from the EU directive.

Dod