BAE Systems 2000 Pension Plan, Farnborough, England, completed one of the largest longevity swaps transactions in the U.K. to date with Legal & General to insure about £3.2 billion ($4.9 billion) of liabilities, according to Richard King, L&G spokesman.
The deal covers current retired members of the £3.4 billion pension fund, which was launched following the merger of British Aerospace PLC and Marconi Electronic Systems in 1999.
The arrangement “will reduce the funding volatility relating to increasing life expectancy,” according to BAE Systems' annual report issued Thursday. (The liabilities valued were measured using the London interbank offered rate swap curve.)
Legal & General will retain about 30% of the longevity risk, with the remainder reinsured by Hannover Re Group. Aon Hewitt advised BAE Systems and the pension fund's trustees.
The value of the liabilities insured for the BAE Systems transaction alone is equal to the amount recorded in the U.K. in all of 2012, when about £3.2 billion of liabilities were insured against longevity risks in three separate deals, according to data from Aon Hewitt.
“This transaction, along with others in the pipeline, demonstrates the capacity and appetite of the global reinsurance market to take on pension longevity risk,” according to Martin Bird, partner and head of risk settlement at Aon Hewitt.
|U.K. pension fund longevity swap deals to date|
|Amounts are in millions of pounds sterling.|
|February 2013||BAE Systems||Legal & General||£3,200||Pensioner bespoke longevity swap|
|December 2012||LV=||Swiss Re||£800||Pensioner and all members over age 55|
|May 2012||Akzo Nobel||Swiss Re||£1,400||Pensioner bespoke longevity swap|
|January 2012||Pilkington||Legal & General||£1,000||Pensioner bespoke longevity swap|
|December 2011||British Airways||Goldman Sachs / Rothesay Life||£1,300||Pensioner bespoke longevity swap|
|November 2011||Rolls-Royce||Deutsche Bank||£3,000||Pensioner bespoke longevity swap|
|August 2011||ITV||Credit Suisse||£1,700||Pensioner bespoke longevity swap|
|February 2011||Pall||J P Morgan||£70||Non-pensioners index based longevity hedge|
|July 2010||British Airways||Goldman Sachs / Rothesay Life||£1,300||Synthetic buy-in (longevity swap plus asset swap)|
|February 2010||BMW||Abbey Life / Deutsche Bank||£3,000||Pensioner bespoke longevity swap|
|November 2009||Royal Berkshire||Swiss Re||£1,000||Pensioner bespoke longevity swap|
|July 2009||RSA Insurance group||Goldman Sachs / Rothesay Life||£1,900||Synthetic buy-in (longevity swap plus asset swap)|
|May 2009||Babcock||Credit Suisse||£1,500||Pensioner bespoke longevity swap (three schemes)|
|Source: Aon Hewitt|