The September transactions – totaling nearly £1bn – bring the total liabilities insured since 2013 to over £8bn across 11 transactions or around 75% of the Fund’s liabilities. LCP has acted as lead adviser on all 11 transactions. The Fund has insured more than twice the amount of liabilities through buy-ins as any other UK pension fund.
LCP conservatively estimates the Fund has saved over £100m in the past two years through insuring liabilities over time with a panel of insurers through umbrella contracts. This approach has a number of advantages. The insurers know the Fund can transact quickly if pricing is competitive and they reward this certainty with keener pricing – the Fund is effectively at the “front of the queue”. The Fund can also move quickly to lock into market opportunities as they arise, such as the £750m buy-in executed with Legal & General in the week following the EU referendum vote in June. Lastly, changing insurer appetite for different liability profiles and demographics can lead to further price benefits.
Clive Wellsteed, partner at LCP, said: "With a knowledgeable and proactive trustee board, well-rehearsed processes and umbrella contracts with insurers already in place, we have been able to achieve considerable savings in insurer pricing – even a conservative estimate would put the saving for the Fund at well over £100m over the past two years."
Heath Mottram, CEO of the ICI Pension Fund, said: "We are delighted that the Fund continues to benefit from competitive pricing on a frequent and ongoing basis due to the strength of our governance and unique contract documentation. We see this becoming a blueprint for how larger schemes will insure their liabilities at scale through buy-ins in the future.”
Clive Wellsteed said: “We have seen an increase in insurer appetite and activity since the EU referendum in June. For schemes that are holding bonds or gilts or have hedged interest rates, there are compelling opportunities to de-risk at attractive levels through buy-ins and this is generating significant interest from schemes we are speaking to.”
Emma Watkins, Director of Bulk Annuities at Scottish Widows, said: “This transaction demonstrates the effectiveness of the umbrella buy-in contracts that we have in place with the ICI Pension Fund. They enable the Trustee to optimise the timing and size of transactions working within a clearly defined process designed with their advisors LCP that ensures high levels of insurer engagement. Executing a large buy-in in under two weeks shows the operational, investment and structuring capability that Scottish Widows can bring to bear to support schemes in meeting their objectives.”
Cheryl Agius, Head of Legal & General Strategic Pension Risk Transfer said “This transaction is another impressive example of the benefit of the long term relationship we have developed with the ICI Pension Fund and the strong collaborative approach of their advisers, LCP. Through the certainty and clarity provided by the umbrella contract, clear pricing target discussions and established governance procedures, Legal & General have been able to price competitively by targeting specific investment and reinsurance opportunities in the knowledge that transactions which meet the Trustee’s objectives will be executed quickly and seamlessly.”
The £3bn transaction with Legal & General in March 2014 remains the largest buy-in or buy-out policy ever executed in the UK.
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