BMW insures defined benefit pension against increased life expectancy

German car maker BMW has insured its defined benefit (DB) pension scheme against risks related to the life expectancy of 60,000 pensioners.

The longevity insurance transaction, relating to £3 billion of pension scheme liabilities, is designed to protect BMW against financial risk.

Abbey Life, wholly-owned by Deutsche Bank, will insure longevity risks of BMW’s scheme while spreading a proportion of the risk to a consortium on reinsurers, including Hanover Re. The deal was arranged by insurance company Paternoster.

Ed Jervis, chief executive officer of Paternoster, said: “This transaction represents a ground-breaking precedent in the rapidly-growing market for insurance against longevity risks.”

Martin Bird, principal and head of longevity and risk solutions at Hewitt Associates, which advised on BMW’s longevity hedge arrangement, said: “Entering into a bespoke longevity hedge to mitigate against continued improvements in member life expectancy is a natural extension to the scheme’s current liability matching investment strategy and is designed to enhance further the security of members’ benefits.”

Read more articles on occupational pensions