Consultancy Aon Hewitt, part of the Aon group, assisted UK-based telecommunications company BT on a £16bn longevity swap undertaken by BT in order to protect itself against extended life expectancy amongst its final salary scheme employees.
In a complex deal, BT transferred the longevity risk to a captive insurer, which in turn entered into a reinsurance agreement with Prudential Insurance Company of America. The size of the deal dwarfs other longevity swap transactions, partialy because BT until 30 years ago was the UK state-owned telecommunications arm and had originally been part of the Post Office.
Because of its size, the arrangement does not provide hedging against all of the scheme's overall longevity exposure, but it does protect against more than 25% of BT's potential liability.
Aon Hewitt senior partner and head of Risk Settlement Martin Bird said: "This transaction is the largest single UK pension de-risking deal to date and represents another step forward in terms of innovation. Together with recent large buy-in transactions for ICI and Total, the BT longevity swap underlines the continued focus on pensions de-risking and demonstrates that the market is open to the 'mega-funds'.
Bird said that, as pension schemes continued to focus on reaching a position of stability, there was "significant demand" for such large scale capacity. This in turn had led to the provision of a number of new solutions from counterparties such as Prudential USA. "This includes the use of captive structures which enable even the very large schemes to make risk settlement secure and affordable on such a scale."