BT’s £40 billion pension scheme has established its own wholly-owned insurance company in order to complete the UK’s biggest ever de-risking deal.
The trustees of the scheme set up the company—Guernsey-based BTPSI (No1) IC Limited—to insure £16 billion of liabilities against longevity risk, before then reinsuring through a longevity swap arrangement with the Prudential Insurance Company of America. The deal covers more than a quarter of the scheme’s liabilities.
The longevity insurance policy will provide income to members should they live longer than forecast, while the pension pays the premiums to Prudential Insurance Company.
A statement from the pension scheme said the establishment of its own insurer meant it could access the insurance and reinsurance markets directly and “achieve the best value” for the pension.
Paul Spencer, chairman of the pension fund’s trustees, said: “This transaction has taken many months of hard work by the scheme’s executive team. This is a ground-breaking deal in terms of size, structure and with one of the leading life insurance companies in the US providing reinsurance.”
He added that the deal “significantly reduces risk and provides enhanced security for members”.
Martin Bird, senior partner and head of risk settlement at Aon Hewitt, which advised sponsor company BT on the deal, said insurance and reinsurance providers were responding quickly to the need for larger-scale de-risking options.
This year has already seen a number of de-risking deals struck for liabilities of more than £1 billion. Chemical company AkzoNobel insured its £3.6 billion ICI Pension Fund with Legal & General and Prudential of the UK in March—the UK’s biggest buyout of an entire pension fund—and this was followed by oil giant Total insuring £1.6 billion of liabilities with Pension Insurance Corporation last month, the second largest buy-in the UK has seen.