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Insight Investment Management (Global) Limited is authorised and regulated by the Financial Conduct Authority (no. 119308). Registered in England and Wales. Registered number: 00827982. Registered office: 160 Queen Victoria Street London EC4V 4LA. VAT number GB 577 7181 95.

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A new approach to hedging longevity risk

longevity-hedging solution

For defined benefit (DB) pension schemes running on, their largest remaining risk – longevity risk – has come into much sharper focus. Insight has developed a simpler approach to hedging this risk more swiftly and at a much lower cost.

If scheme members live longer than expected, a DB pension scheme will need to pay out pensions for longer.

Here we illustrate a scheme targeting a buy-out in 20 years. The scheme is invested 50% in gilts and 50% in corporate bonds, and does not hedge longevity risk. After five years, the scheme determines that its initial life expectancy projections were one year too short – this has an immediate impact on its funding level.

Without a significant change in its investment strategy, the scheme will not be on course to achieve its target.

Case study: How longevity risk could throw a DB scheme off track1

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Insight has developed a simpler, innovative approach to hedging longevity risk more swiftly and at a much lower cost than traditional approaches.

Simple and cost-effective: How Insight’s new longevity hedging solution works2

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  Traditional longevity swap Insight’s new longevity solution
Simple and standardised legal documentation? No Yes
Can existing collateral infrastructure be used? No Yes
No intermediary required? No Yes
Can existing operational infrastructure be used? No Yes
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A new approach to hedging longevity risk

Insight has developed this new longevity-hedging approach in collaboration with other industry innovators. We believe it will help to dramatically reduce implementation time and cost whilst retaining the effectiveness of a standard longevity hedge. Please contact us to find out how this might help your DB scheme.

Insight has developed this new longevity-hedging approach in collaboration with other industry innovators. We believe it will help to dramatically reduce implementation time and cost whilst retaining the effectiveness of a standard longevity hedge. Please contact us to find out how this might help your DB scheme.

Contact us

Further reading on longevity risk
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Longevity swaps: How they apply to run-on and buy-out

Longevity swaps: How they apply to run-on and buy-out

Longevity risk remains the largest unhedged risk for many defined benefit pension schemes. As their cost has decreased, now may be an ideal time to take a closer look. 

Read More

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Longevity hedging demystified: 12 key facts

Longevity hedging demystified: 12 key facts

As defined benefit pension schemes seek to maximise the certainty of achieving their endgame objectives, they often consider whether and how to hedge their longevity risk. We present 12 key facts to help demystify longevity hedging for trustees.

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Case study: How a pension fund hedged its longevity risk

Case study: How a pension fund hedged its longevity risk

Derivatives require only a portion of total market exposure to be set aside initially, allowing you to gain desired exposures while leaving assets free for other purposes.

Read More 

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