BMW looks at insuring UK pension liabilities

Raindrops are seen on the BMW car in Munich, May 14, 2009.

LONDON (Reuters) - German carmaker BMW's British pension fund is considering ways of covering the risk posed by people living longer, the company said on Monday, joining a list of companies looking to manage their pension liabilities.

The schemes' trustees "are always looking at options for controlling and reducing the risks associated with the financing of the scheme," BMW said.

The Financial Times had reported the scheme wanted to insure 2.5 billion pounds of longevity risks from the scheme.

The defined benefit pension fund had 4.4 billion pounds in liabilities and a 584 million deficit according to its last valuation report in April 2007.

BMW said the scheme was working towards matching its liabilities. "Many new ideas for risk reduction and control are considered and, where appropriate, thoroughly evaluated."

One way of companies doing this is through longevity swaps, under which a pension scheme can exchange the uncertainty connected to the costs of financing pensions over a longer term with a pre-determined stream of cash with a counterparty, which in return takes on the longevity risk for the lifetime of the swap.

Last May, Babcock International became the first British company to do such a swap deal using Credit Suisse as counterparty to hedge 500 million pounds.

According to the Financial Times, BMW is working on a deal with Deutsche Bank and pension insurer Paternoster. Both parties declined to comment.

(Reporting by Susan Fenton and Cecilia Valente; Editing by David Holmes)