The Airways Pension Fund announces longevity risk transfer
The Airways Pension Scheme has announced a longevity swap transaction to transfer longevity risk in relation to £340 million of the Scheme’s liabilities.
The transaction, with Metropolitan Tower Life Insurance Company, a subsidiary of MetLife, Inc., and Zurich Assurance Ltd, will provide long term protection to the Scheme against costs resulting from members living longer than currently expected, enhance security for Scheme members, and transfer longevity risk in respect of active and deferred members of the Scheme in addition to members with pensions in payment.
The longevity insurance policy is structured as an insurance arrangement between the Trustees of the Scheme, which is for British Airways employees, and Zurich UK, and a back-to-back reinsurance arrangement between Zurich UK and MetLife using Zurich UK’s pass-through solution. Under this pass-through structure, MetLife assumes 100% of the longevity risk associated with around 1,100 members of the Scheme, and the Trustees and MetLife take on mutual credit risk exposure to each other.
The arrangement will form part of the Scheme’s investment portfolio and will provide income to the Scheme in the event that members live longer than currently expected.
The Airways Pension scheme has previously used a Guernsey based captive insurer to insure pension liabilities against longevity risk.
Under the setup, the trustee transferred the longevity risk to the captive company, which then agreed reinsurance contracts with life reinsurers.
“This transaction marks the latest step in the Trustees’ long-term strategy to manage risks in the Scheme and we were delighted to support with this, including working closely with the Trustees to design an innovative method for transferring non-pensioner longevity risk,” said Shelly Beard, WTW lead adviser to the Trustees.
“This is the second longevity swap announced in 2024 covering less than £1bn of liabilities, and the fifth in recent years to include non-pensioners, which goes to show that hedging longevity risk in this way is an option available to schemes of all shapes and sizes.”
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