L&G helps BA convert longevity swap into part of a £4.4bn buy-in


Legal & General Group Plc has assisted one of the pension schemes of airline British Airways to convert a longevity swap it already had into part of a $4.4 billion pension buy-in, the largest bulk annuity transaction to-date and among the only examples of a longevity swap conversion.

L&G completed the £4.4 billion buy-in for the Airways Pension Scheme (APS), covering nearly 22,000 pensioners including the majority of the longevity risk associated with them.

It is the largest ever bulk annuity policy featuring a UK pension, with the conversion of existing longevity insurance in swap form into a bulk annuity an innovative feature.

Nigel Wilson, Chief Executive, Legal & General Group, commented on the deal, “I’m delighted that Legal & General has transacted the largest bulk annuity to date in the UK for British Airways’ pension scheme. As we indicated at the half year results, the second half of 2018 is likely to be a record six months for our PRT business and we expect to announce further transactions in the next few months. We are actively quoting on £27 billion of UK PRT deals demonstrating the strong demand for insurance, supported by increasing affordability, as trustees seek to improve security for members and companies look to remove legacy liabilities. Legal & General’s combination of longevity and investment management expertise uniquely positions us to deliver at scale, providing solutions that benefit schemes and their members.”

Laura Mason, CEO Legal & General Retirement Institutional, added, “We are proud to have delivered this ground-breaking transaction, the largest bulk annuity transaction completed in the UK market. This is a great example of Legal & General delivering for UK companies and their pension members, enabling pension schemes to provide security to their pensioners in retirement.

“This transaction also included the conversion of existing longevity insurance to a bulk annuity, demonstrating Legal & General’s ability to deal with a complex situation and offer innovative solutions drawing on the broad experience and capabilities of the wider Legal & General Group.

“The depth and scale of our Retirement business means that we can confidently deliver for APS scheme members, whilst maintaining capacity for further de-risking activity in the near term.”

The need for capacity for these deals is clear and reinsurance markets play a key role in helping pensions to offload longevity risk.

Legal & General said it is now actively quoting on £27 billion of UK pension risk transfer deals, suggesting capacity requirements will continue to be high.

Reinsurance capacity for longevity risks does seem to be less abundant this year, but it isn’t stopping large or innovative deals taking place yet.

Virginia Holmes, Chair of Airways Pension Scheme Trustee Limited, explained the benefits of this deal, saying, “It insures the Airways Pension Scheme (APS or the Scheme) against potential increases in liabilities in case our pensioners live even longer than currently expected – known as ‘longevity risk’. It also removes financial risks such as interest rate and inflation changes.”

The longevity insurance swap that was converted is the August 2017 £1.6 billion deal with Canada Life Re and PartnerRe, we understand.

Transitioning from longevity hedging, through longevity swaps and other insurance or reinsurance instruments, to a full bulk-annuity buy-in has only become viable in the last year and these remain rare.

The first unwinding of a longevity swap saw UK closed life and pension fund consolidator Phoenix Group transform the insurance terms of its longevity swap into a £1.2 billion annuity arrangement with the help of Aon Hewitt.

Often they would be dealt with as an expansion of the existing agreement, meaning existing capacity providers may be behind them. In this case it’s not clear who is supporting the BA pension scheme.

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

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