Cost And Ease Of Captive Set-Up A Fit For Hedging Longevity

Benefits of utilising a captive insurance company to hedge longevity risk include a lower cost base and the guarantee of a 'principal-to-principal' approach between the pension scheme and the reinsurance market, according to pensions funding expert Ian Aley.

Mr Aley, who heads the transactions team at Towers Watson and specialises in advising pension funds and sponsors on insurance-based transactions for de-risking purposes, told a London audience of pension fund trustees and asset managers that the use of captives was an efficient means of dealing with the risks associated with large pension schemes.

He explained that, while cost was a key factor behind using a captive, the fact that a captive allowed pension schemes to maintain control by facilitating a 'principal-to-principal' approach with the removal of third parties in transactions was equally important.