The Trustees, working with their appointed advisers conducted a thorough market review process and selected Rothesay Life to deliver a bespoke solution to the Scheme. Our selection was based on the insurer's creativity and structuring abilities, the robustness of the security package underlying the insurance contract and the execution certainty, which gave us the ability to deliver this solution at a pre-agreed price level.

Paul Spencer Chairman of the Trustees of the Airways Pension Scheme

Key Facts

  • £3bn bulk annuity with the Airways Pension Scheme (APS), one of two defined benefit pension schemes sponsored by British Airways, covering 25,000 members
  • Repeat business across three separate transactions with Rothesay Life covering 44% of the pensions payment for the pensioners covered
  • Innovative structures to take advantage of market dislocation and volatility across three separate transactions with Rothesay Life

The Transaction

  • In 2009, the Airways Pension Scheme embarked on a process of soliciting quotations from providers for both bulk annuities and longevity swaps
  • A key constraint was to avoid any immediate additional funding requirement on the corporate sponsor
  • The dislocation and volatility in the index-linked gilt markets provided an opportunity to de-risk using an innovative structure proposed by Rothesay Life with execution only occurring if the constraint could be met
  • The structure eliminated any longevity, inflation and interest rate risk associated with 20% of the pensioner benefits in exchange for a series of pre-determined regular premium payments
  • The regular premium payments for the bulk annuity are in line with the cash flows on specific index-linked gilts
  • As part of the transaction, the Trustees invested in these gilts in order to take advantage of the then-existing dislocation in the gilt market
  • The Trustees hold these gilts and thereby have matched their regular premium payments to Rothesay for the bulk annuity
  • Rothesay entered into a repeat transaction with the Trustees in December 2013 to increase the payments from 20% to 24%
  • Rothesay also entered into a further transaction with the Trustees in December 2011 covering a further 20%, making a total of 44% of the pensions for the pensioners covered. For this additional 20% the regular premium did not match the cash flows on gilts and the structure is similar to a pure longevity swap

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