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.”
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.”