AA Pension Scheme, Huddersfield, England, insured £351 million ($459 million) in liabilities in a buy-in with Canada Life Financial.
The deal made in August was the £2 billion pension fund for the British Automobile Association's first risk transfer transaction, which covered all the benefits payable to 2,510 retirees. "They are planning further deals but not for any specific timescale," Dominic Grimley, risk settlement adviser at Aon, said in a telephone interview. Aon advised the pension plan on the deal.
"The pension fund made the decision at this time because of better risk protection and because of a pricing opportunity to increase overall value of the return," Mr. Grimley said.
AA said in a half-year results update Wednesday that the defined benefit fund's deficit decreased by £154 million during the six months ended July 31 to £188 million due to increasing discount rates, falling long-term inflationary expectations and changes in the demographic assumptions reflecting the latest outlook for mortality rates.
The group made deficit reduction contributions of £2 million in the year ended Jan. 31 and will make annual deficit reduction contributions, increasing with inflation, until December 2023 or until "an alternative agreement is signed with the trustees," AA said in the financial update.
AA has committed to pay around £22 million in ongoing employer contributions and £24 million in deficit reduction contributions to its defined benefit plan in the year ending Jan. 31, 2019.