Help

BI’s Article search uses Boolean search capabilities. If you are not familiar with these principles, here are some quick tips.

To search specifically for more than one word, put the search term in quotation marks. For example, “workers compensation”. This will limit your search to that combination of words.

To search for a combination of terms, use quotations and the & symbol. For example, “hurricane” & “loss”.

Login Register Subscribe

U.K.'s BT Pension Scheme strikes record longevity risk transfer deal

Reprints
U.K.'s BT Pension Scheme strikes record longevity risk transfer deal

BT Pension Scheme, London, has entered into the biggest longevity risk transfer deal to date, covering £16 billion ($27.46 billion) of liabilities in an arrangement that also saw the fund set up a wholly owned insurance company, said a spokeswoman for the fund.

The transfer hedges over 25% of the £40 billion ($68.64 billion) pension fund's overall exposure to improvements in longevity.

To facilitate the arrangement, BTPS set up a wholly owned insurance company, transferring its longevity risk to this insurer. The risk was then reinsured by U.S.-based life insurer The Prudential Insurance Co. of America.

“This is a ground-breaking deal in terms of size, structure and with one of the leading life insurance companies in the United States providing reinsurance,” said Paul Spencer, chairman of the trustee, in a news release by BTPS. “But more than this, the trustee is delighted with a transaction that significantly reduces risk and provides enhanced security for members.”

The longevity insurance policy will form part of the pension fund's investment portfolio, according to the release.

Towers Watson & Co. advised the trustee on the transaction, structure and setup of the insurance company. Aon Hewitt advised BT P.L.C. on the deal. BTPS was also advised by Allen & Overy L.L.P. with support from Hogan Lovells.

“Reinsurers are not able to transact directly with pension funds, so (BTPS) has built that middle entity,” said Ian Aley, a senior consultant at Towers Watson, in a telephone interview. “The reason they didn't go through an intermediary is that the intermediary route is somewhat restricted in the size of the transaction you could do. Consequently, as it is such a big scheme, it wouldn't have necessarily made a large enough transaction to make it material for the scheme.”

Mr. Aley said he thinks other pension funds will “do similar things, but not on this scale.”

“As pension schemes continue to focus on reaching a position of stability, there is significant demand for such large-scale capacity — and we are seeing a rapid response from the provider market with a number of new solutions available,” said Martin Bird, senior partner and head of risk settlement at Aon Hewitt, in a news release by the consultant.

Sophie Baker writes for Pensions & Investments, a sister publication of Business Insurance.

Read Next