The British Airways (BA) Airways Pensions Scheme (APS) has used a captive to insure £1.6 billion of pension liabilities against longevity risk.
In BA’s APS August newsletter to trustees, the airline explained that the scheme has set up its own insurance company in Guernsey to manage the risk.
Although the trustee owns the captive insurance company, it will be operated and managed independently.
Under this new setup, the trustee has transferred the longevity risk to the captive company, which has agreed reinsurance contracts with Partner Re and Canada Life taking on the risk.
Previously, the scheme took a similar approach when it insured $2.6 billion of liabilities.
The newsletter stated: “Protecting some of the scheme’s liabilities in this way does not change how your APS pension is calculated, paid or increased. BA Pensions will remain your point of contact for any help you may need and will continue to pay and administer pensions in the way that it always has.”
The setup is similar to deals such as the BT Pension Scheme and the Merchant Navy Officers’ Pension Fund.
The BT pension scheme £16 billion deal has been the largest longevity swap transaction to date.
