L&G in record £1.1 billion pension buy-out, also buys longevity reinsurance

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Legal & General, one of the largest insurance and financial services groups in the UK, has entered into the largest buy-out of a pension schemes liabilities through a £1.1 billion ($1.8 billion) bulk annuity contract with the T&N Retirement Benefits Scheme trustees. The transaction is actually a buy-in which transitions to a buy-out in due course according to L&G.

Legal & General will be responsible for paying the retirees pensions in exchange for assets provided by the pension scheme.

By entering into such a huge deal Legal & General again expose themselves to the risk of pensioners living longer than expected and therefore having to pay them more. To hedge this longevity risk Legal & General have also announced today a £390m longevity reinsurance deal with Reinsurance Group of America which expands the protection they have against longevity risk.

So, once again we’re seeing a longevity risk pipeline being passed along from pension fund, via insurer to a reinsurer. At some point that longevity risk has to be transferred elsewhere and this is where the capital markets are likely to participate.

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