GLOBAL - An insurance product to protect DB sponsors against the cost of pensioners living longer than expected has been launched by Pension Corporation.
Pension funds, who will pay a fixed annual premium set at the inception of the longevity insurance policy, will be reimbursed for the cost of any future pension payments that arise from pensioners living longer than expected.
The policy will remain in force until the death of a pension fund's last covered pensioner or their dependant, such as a spouse.
In April, Global Pensions reported the growing demand for a longevity product from pension funds in the UK (www.globalpensions.com , 18 April 2008).
John Fitzpatrick, partner of Pension Corporation and director of Pension Insurance Corporation, said: "Pension funds have for some time been clambering for a product that would cover the specific risk of their longevity.
"They wanted it to be an insurance policy from a fully regulated insurance company, not a derivative instrument. They also had a preference for covering the specific longevity risk of the pension fund, rather than an index product that covers the longevity of the population at large.
"They wanted coverage for the whole of life, until the last pension died or their dependant, rather than coverage for just 10 years - there are many products that do that. A lot of them are very focussed on their asset strategies and don't want to pay over all the assets related to the pensioners to the insurance company, they want to keep 100% of their assets fully invested and earning returns, and that's what this product allows them to do."
Marcus Hurd, senior consultant and actuary at Aon, said there was a clear demand for products based around mortality: "What we need are a few big companies to investigate it seriously. The problem with mortality is it's uncertain, so they have to be ultra conservative. It's very expensive. But it is a huge market if someone can tap into it."
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