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Group offers contingent capital to ease deficits

EUROPE - A group comprising insurance and software executives says it has put together a vehicle using so-called contingent capital that can help with pension funding problems.

The group includes involvement from Towers Perrin Reinsurance and financial software firm Panopticon. The idea is being driven by Stefan Wasilewski, managing director at risk management specialist Quantum Cybernetics.

"We have put together a vehicle that will help institutions and governments address their current and future pension funding predicament," said Panopticon sales director Shaun Proudfoot.

Fees would be around 2-3% for placement. Any business produced would be placed via Amar Shah, director of Towers Perrin Reinsurance in London, Wasilewski, Shah and Proudfoot said in an interview.

Contingent capital, Proudfoot said, combines debt and insurance. "The combination of the two will provide a basis for organizations to cover their exposures to their pension funding obligations."

Experts were sceptical.

"There have been lots of these schemes floating round for corporates and they are all sleights of hand," said John Ralfe, the pension consultant who used to be head of corporate finance at Boots Plc. "I have no reason to believe this is any different when looking at pensions."

Contingent capital is a new insurance industry approach whereby funds are made available when pre-defined events 'trigger' the need for capital.

It could be compared to insurance, as funds are delivered by an unlikely event. But unlike insurance, funds drawn under a contingent capital facility must be repaid to the capital provider.

Proudfoot says the group can get funding to plug pension deficits at "sub-libor" London Interbank Offered_Rate rates.

He said: "The funding would be at standard market rates that are charged in the financial market place today, and the implementation of the operational risk methodology would depend on the size of the organization and how long it would take a consultancy to implement it."

The group says it has just started talking directly to the chief financial officers at UK companies. It will not be going via investment consultants.

"We feel this vehicle would give organisations an opportunity to plug the funding gap but also address the mistrust in the marketplace based on past experience on how companies have mismanaged pension funds," Proudfoot said.

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