Life insurer Legal & General and German reinsurer Hannover Re have joined forces to cover glassmaker Pilkington's staff pension fund against the risk of members living longer than expected.

L&G has agreed to take on the cost of unexpected increases in the lifespan of some 11,500 retired Pilkington employees in return for an undisclosed fee, and transferred 90 percent of the risk to Hannover Re under a separate reinsurance contract, the companies said on Monday.

Hannover Re said the deal, which covers about 1 billion pounds of pension liabilities, should provide it with total premium income of 800 million pounds, including 60 million pounds this year.

Unforeseen increases in pensioners' lifespans, fuelled by medical advances and lifestyle changes, are threatening retirement schemes with extra costs just as volatile financial markets make it harder for them to generate secure retirement income for their members.

This has put pressure on pension schemes to pass on their longevity risk to financially stronger banks and insurers in return for a lump-sum payment, creating a booming pension risk transfer market dominated in Britain by L&G, Aviva ,, Prudential
, and Goldman Sachs' Rothesay Life.

Deutsche Bank in November agreed to take on longevity risk on some 3 billion pounds of liabilities held by British aero engine maker Rolls-Royce's , pension fund, while Credit Suisse struck a similar deal with broadcaster ITV in August.

The total volume of pension risk transferred by British corporate pension funds is expected to rise to 50 billion pounds by the end of 2012, up from about 30 billion pounds a year earlier, according pension consultants Hymans Roberston.

We anticipate good business opportunities since it is likely that companies will increasingly seek to limit their direct pension obligations, Hannover Re Chief Executive Ulrich Wallin said in a statement.

Hannover Re, the world's third-biggest reinsurer, has taken on about 5 billion euros (4.1 billion pounds) of pension obligations since completing its first such deal in 1998.

Under the deal with L&G, Hannover is not assuming any investment or inflation risk, it said.

Separately, L&G said a restructuring of its overseas units had boosted its capital by about $144 million (93.2 million pounds).

Efforts to increase the capital efficiency of L&G 's U.S. business have yielded a windfall of $100 million, while a similar exercise at its Dutch outpost have generated a special dividend of 35 million euros, Britain's fifth-biggest insurer.

The extra capital comes on top of an initial $129 million cash injection from L&G's U.S. unit last year.

Hannover Re shares were down 1 percent at 37.5 euros by 11:25 a.m., underperforming a 0.45 percent drop in the Stoxx 600 European insurance index <.SXIP>, while L&G was 0.2 percent lower.

(Reporting by Myles Neligan and Ludwig Burger; Editing by Erica Billingham and Jane Merriman)