BAE Systems agreed to longevity insurance deals covering £1.8 billion ($2.9 billion) of liabilities across two of its pension funds with Legal & General, confirmed a spokeswoman for the defense contractor.
The deal covers the risk of 17,000 members of the Royal Ordnance Pension Scheme and Shipbuilding Industries Pension Scheme, both of Farnborough, England, living longer than expected. The pension funds have £1.3 billion and £1.5 billion of assets respectively.
The spokeswoman said these deals cover about 60% of the Royal Ordnance Pension Scheme's total liabilities and about 40% of the Shipbuilding Industries Pension Scheme's total liabilities.
“We seek to mitigate pension liability volatility where we can,” said Peter Lynas, group finance director, in a BAE Systems news release. “This arrangement provides us with a greater degree of certainty as to future pension scheme cash flows as we continue to make provisions for our pensioners. This is another proactive measure we have taken as part of our strategy to manage risk associated with our pension schemes.”
Legal & General has retained 15% of the longevity risk for the Royal Ordnance Pension Scheme. The remaining 85% has been reinsured with Hannover Re Group. It retains 30% longevity risk for the Shipbuilding Industries Pension Scheme with the remainder reinsured with Reinsurance Group of America.
Aon Hewitt advised BAE on the deal.