Willis launches solution to help pensions access longevity reinsurance

Insurance and reinsurance broker Willis Group has launched a captive type solution to enable pension funds to establish their own insurance intermediary, in order to ease access to global longevity reinsurance capacity.

Willis hopes to help pension and retirement funds to better manage the risk and cost associated with their retirees living longer than expected. Longevity risk is a growing exposure that affects most defined benefit pension schemes and access to global reinsurance capacity is seen as a key element of facilitating transfer of the risk.

In order to make it cheaper and more cost-effective to access global reinsurance capacity for longevity risk, Willis has announced that it now has a captive insurance solution which will help pensions to set up the middle-man insurer necessary from them to access reinsurance capacity.

Willis notes that there has been little appetite for longevity risk protection directly from insurers, and that global reinsurance companies have proved most keen to underwrite and take on this risk. It’s seen as a valuable hedge against other mortality risks that reinsurers assume.

Pension schemes that establish their own captive insurance vehicle can gain a direct link to this reinsurance capacity, Willis explains. This reduces friction and costs, although it can put larger burdens on the pension scheme in terms of getting the transaction completed.

David Lewis, Director of Consulting for Willis’s Global Captive Practice, commented; “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.”

Lewis told Artemis that the solution would typically involve a cell based approach, PCC or ICC to provide the captive insurance vehicle, which can then access the global reinsurance markets with Willis’ help.

“It’s an example of captive technology being used to solve a modern-day problem and to access insurance-based solutions that, until now, have been unavailable – we believe that, as captive managers, it is one of primary responsibilities to innovate, to understand our client’s current risk issues and to create new solutions that deliver genuine value,” Lewis explained.

“Our strategy is one of close alignment to industry segments, leveraging our in-house expertise and building a clear understanding of key business risks, using that advanced understanding to develop and deliver new and market-leading solutions,” Lewis concluded.

The use of an intermediary, or middle-man, insurance vehicle is now seemingly the accepted approach for large pension funds to access the reinsurance market, as evidenced by all of the major brokers and some consultancies now having announced such solutions as being available.

As longevity risk gains profile all the time, and of course the risk keeps on growing, these solutions are likely to become the norm for larger pension funds accessing reinsurance and in future likely for smaller pensions too.