Broker Willis has unveiled a longevity risk solution which allows pension schemes to insure against the risk of a shortfall in their pension schemes.
The solution is aimed at helping pension schemes manage the rising costs associated with increased life expectancy through a captive insurance company.
Willis added that although there is little appetite for longevity risk protection from direct insurers, reinsurance companies are more interested in underwriting this risk because it “offers a valuable hedge against other mortality risks in their portfolios”.
This means that pension schemes that establish their own captive have a direct link to this reinsurance capacity.
David Lewis, director of consulting for Willis’s global captive practice, said: “The management of longevity risk has always been a key consideration for pension schemes. As life expectancy around the world continues to increase many pension schemes suffer from a financial shortfall as their members claim benefits for decades longer than the fund originally anticipated or budgeted for.
“This new captive solution offers pension schemes an efficient and cost effective mechanism for transferring longevity risk off their own balance sheets.”