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BAE Systems agrees £1.7bn longevity deal with L&G

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BAE Systems has agreed separate longevity insurance arrangements for two of its schemes – the Royal Ordnance Pension Scheme and the Shipbuilding Industries Pension Scheme – with Legal & General (L&G).

The new arrangements hedge against the longevity risk of around 17,000 of the schemes’ members, covering a total of £1.7bn (€2bn) of liabilities as measured using the schemes’ funding assumptions, or £1.8bn discounted at Libor.

The agreement follows the £3.2bn deal (£2.7bn on the plan’s funding assumptions) set up by L&G for the BAE Systems 2000 Pension Plan earlier this year.

Nigel Tinsley, group pensions director at BAE Systems, said: “Following the success of the transaction we completed early in 2013, we are again pleased to have reduced the longevity risk exposure within another two of our pension scheme arrangements.”

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Aon Hewitt served as adviser to the trustee in the transaction.

L&G was appointed after a competitive selection process in June.

According to Martin Bird, senior partner and head of risk settlement at Aon Hewitt, notable features of the deals included structuring CPI-linked longevity protection and developing an effective structure appropriate for the sectionalised nature of the Shipbuilding Industries Pension Scheme.

Meanwhile, L&G estimates that these transactions have taken the total market volume for pensions insurance derisking in the UK to more than £16bn in 2013.

Tom Ground, head of L&G’s bulk annuity and longevity insurance business, said: “Legal & General has now insured over £7.5bn of pension scheme risk in 2013, including the acquisition of Lucida, and secured over 40% of the insurance derisking business written across the market this year.”

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