Legal & General has put in place a longevity insurance arrangement for the BAE Systems 2000 Pension Plan, the largest such arrangement completed in the UK.
The arrangement insures the Plan against the financial risk of its 31,000 current pensioners living longer than expected, covering a total of £2.7bn of liabilities as measured by the Plan, or £3.2bn discounted at Libor. The pensioners of the Plan will see no changes to its administration.
The transaction demonstrates the increasing appetite of pension schemes and their sponsors for insuring longevity risk, as well as Legal & General's capability in this developing market. Legal & General will retain 30% of the longevity risk, with the remainder being reinsured by Hannover Re.
Nigel Tinsley, Group Pensions Director at BAE Systems, said: "We are pleased to have worked with Legal & General and Aon Hewitt to develop this innovative approach to managing risk exposure within the BAE Systems 2000 Pension Plan. This arrangement offers us a flexible approach to managing the key risk of longevity in the Plan. We are particularly pleased that we were able to complete the process in a structured and straightforward fashion within 6 months."
Tom Ground, head of Legal & General’s Insurance De-risking Solutions for Pension Schemes, said: "Legal & General is delighted to have been selected by the Trustee of the BAE Systems 2000 Pension Plan for this important transaction. Legal & General’s strength in this market is founded on many years of experience offering de-risking solutions to pension schemes. This strength is enhanced by our ability to implement a transaction of this nature with as few as one reinsurer counterparty, which allows our clients to achieve optimum value and swift execution of the transaction.”
Martin Bird, Partner and Head of Risk Settlement at Aon Hewitt, said: “We worked closely with BAE Systems and the Trustees of the plan on this significant transaction. The insurance arrangement is fully collateralised and tailored to reflect the Plan's unique profile, bringing together structuring capability and market capacity to enhance members’ security and reducing the funding volatility in the plan.”
Legal & General brings together expertise in investment management with in-depth understanding of longevity risk to provide a comprehensive range of solutions for pension trustees. Legal & General implemented its first longevity insurance transaction with the Pilkington Superannuation Scheme in December 2011 for around £1bn of associated liabilities. Legal & General provides annuities to over 650,000 current pensioners and over 150,000 deferred pensioners.
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