Legal & General has agreed to a longevity insurance arrangement for the defence and aerospace company BAE Systems' 2000 Pension Plan.

The deal is said to be the largest arrangement completed in the UK, and it insures the plan against the financial risk of its 31,000 current pensioners living longer than expected.

The arrangement covers a total of £2.7bn of liabilities as measured by the plan. Legal & General will retain 30% of the longevity risk, while Hannover Re will cover the remainder.

Nigel Tinsley, BAE Systems group pensions director, said: "We are pleased to have worked with Legal & General and Aon Hewitt to develop this innovative approach to managing risk exposure within the BAE Systems 2000 Pension Plan.

"This arrangement offers us a flexible approach to managing the key risk of longevity in the Plan. We are particularly pleased that we were able to complete the process in a structured and straightforward fashion within six months."

In a statement, Legal & General said that the transaction demonstrates the increasing appetite of pension schemes and their sponsors for insuring longevity risk.

Tom Ground, head of Legal & General's Insurance De-risking Solutions for Pension Schemes, said: "Legal & General is delighted to have been selected by the Trustee of the BAE Systems 2000 Pension Plan for this important transaction.

"Legal & General's strength in this market is founded on many years of experience offering de-risking solutions to pension schemes. This strength is enhanced by our ability to implement a transaction of this nature with as few as one reinsurer counterparty, which allows our clients to achieve optimum value and swift execution of the transaction."

Legal & General implemented its first longevity insurance transaction with the Pilkington Superannuation Scheme in December 2011 for around £1bn of associated liabilities.

First published 21.02.2013

monique_simpson@wilmington.co.uk