British American Tobacco (BAT) has insured £3.4bn (€3.7bn) worth of UK pension liabilities with Pension Insurance Corporation (PIC), one of the industry’s biggest such deals.

The transaction covers 8,300 pensioners and 2,300 deferred members, accounting for the majority of the tobacco manufacturer’s £4bn defined benefit (DB) pension scheme. It is the biggest pension de-risking deal to cover both retired and non-retired members, and is PIC’s largest single transaction to date.

Brian Barrow, chairman of the British American Tobacco UK Pension Fund, said: “This transaction is very good news for our members, insuring the vast majority of benefits within the fund. It achieves a significant step towards the trustee’s objective of reducing risk and increasing the security of members’ benefits.

“We are delighted that we have been able to complete a transaction of this scale successfully, despite the recent market volatility. PIC has been flexible and innovative throughout and I want to thank them and our advisers for helping us achieve our de-risking goals.”

Mitul Magudia, head of business development at PIC, added: “Insuring both pensioner and deferred members introduces more complexity to an insurance transaction when compared to similarly large pensioner buy-ins and requires careful consideration of areas including residual risks, asset strategy and reinsurance.

“This transaction continues to advance the development of innovative structures in the de-risking market and we are really pleased to have been able to help the trustee secure its members’ benefits following their excellent stewardship.”

FTSE 100-listed BAT joins a number of other major UK companies to have offloaded pension risk this year. Rolls-Royce’s UK DB scheme insured the benefits of around 40% of its members in a £4.6bn deal with Legal & General (L&G) in June, while L&G also backed a £500m transaction with publishing company Pearson and a £95m deal with private equity house 3i this year.

PIC insured £900m of liabilities for Marks & Spencer’s UK DB scheme in May, with Phoenix taking on £460m.

Michelle Wright, head of trustee consulting at LCP and adviser to the BAT trustees, said: “This landmark transaction is an important milestone for the market. The fund exemplifies the growing trend of large schemes accelerating their de-risking plans due to attractive pricing and improved affordability…

“The competitive pricing negotiated with PIC allowed the fund to maximise the amount insured. Having now insured three quarters of its liabilities, the fund has successfully achieved another important step in reducing risk and increasing the security of members’ benefits.”

The employer was advised on its de-risking strategy by Mercer.

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