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RMS Provides Model for Longevity Risk Transfer
Aegon and Societe Generale use RMS model to hedge €1.4 billion (USD 2.3 billion) of Dutch longevity reserves
Newark, Calif. -
December 05, 2013 -
RMS, the world's leading catastrophe modeling firm, today announced that the company performed risk assessment analysis for the capital markets instrument used by Aegon to hedge the longevity risk of €1.4 billion (USD 2.3 billion) of reserves through Societe Generale to capital markets investors and reinsurers. The transaction protects Aegon against the possibility that mortality improvements in the Netherlands exceed expectations and outpace those in the United States.
RMS provided the medically based model of longevity risk that underpins the structure of the transaction. At the 20-year maturity of the transaction, the final payment is based on modeled scenarios that project mortality another 50 years into the future – allowing Aegon to hedge 70 years of longevity risk with a 20-year instrument. RMS also provided scenario-based modeling results to investors to allow them to gain intuition into the risk of the transaction.
"Models make markets," said Peter Nakada, head of RMS LifeRisks. "This feels very much like the early days of the catastrophe bond market except that the potential size of the longevity market is at least five times larger than the market for natural catastrophe risk."
"RMS was pleased to work with Aegon and Societe Generale on this deal. We believe that it is a watershed deal that will pave the way for many more similar transactions in the future."
RMS models and software help financial institutions and public agencies evaluate and manage catastrophe risks throughout the world, promoting resilient societies and a sustainable global economy.
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