British Airways pension in £1.6bn longevity swap & reinsurance deal

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The British Airways Pension Scheme (APS) has entered into a £1.6 billion transfer of longevity risk, using a captive insurance cell in Guernsey to intermediate the deal and gain more direct access to reinsurance capacity, provided by Partner Re and Canada Life Re.

The British Airways pension fund told its members that favourable reinsurance pricing has enabled it to execute this latest deal, involving the longevity swap to the Guernsey domiciled vehicle, likely an incorporated cell company, with the cell then entering into the reinsurance arrangement.

This structure means an intermediary third-party insurer is not required, making the transaction less costly and more efficient, as the reinsurance markets can be accessed more directly.

“It was more attractive this time for us to go directly to a reinsurer,” the pension scheme trustees told members, “To allow us to do this, we have set up our own insurance company in Guernsey to manage the risk. This company is a ‘captive’ company, which means the Trustee owns it. However, while the ‘captive’ company is owned by the Trustee, the ‘captive’ company is operated and managed independently.”

The Trustee of the BA pension scheme transferred the £1.6 billion of longevity risk to the cell company, using a swap arrangement, and the cell then agreed reinsurance contracts with Partner Re and Canada Life Re.

British Airways had previously entered into longevity risk transfer arrangements in a £1.3 billion deal in 2011 and a similar sized longevity swap in 2010.

Just yesterday we covered the announcement of a £3.4 billion longevity swap and reinsurance transaction for the MMC UK pension plan.

It seems the recent slow-down in longevity swap and risk transfer activity may have come to an end, with pricing deemed attractive on both of these deals and so the pipeline for the rest of the year is likely strengthening all the time.

Read about many historical longevity swap and reinsurance transactions in our Longevity Risk Transfer Deal Directory.

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