£3.6bn buy-in transactions by the ici pension fund: breaking … · 2014-05-14 · £3.6bn buy-in...
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£3.6bn buy-in transactions by the ICI Pension Fund: Breaking through the size threshold
On 25 March 2014, the ICI Pension Fund insured £3.6bn of liabilities
through collateralised buy-ins with Legal & General and Prudential.
� Largest bulk annuity ever: The L&G buy-in (£3bn) is the largest ever
executed in the UK pensions market.
� Opportunity for larger schemes: The ICI transactions show how buy-ins
can be successfully structured at a scale not thought practical until now.
� Specialist advice: LCP acted for the ICI Pension Fund as specialist
adviser on all aspects of the competitive tender and execution process.
LCP ran the transactions with an exceptionally good project management process and brought a degree of commerciality rarely seen in the world of pensions.
Heath Mottram
CEO of the ICI Pension Fund
Having advised on these landmark transactions, LCP brings unique
insights valuable to any pension scheme embarking on a large buy-in
or buy-out:
� Achieving value-for-money in a very large transaction through
in-depth understanding of insurers and their appetite for different
tranches of risk.
� Providing commercial, actionable advice to support effective
negotiations with insurers.
� Developing a practical and cost-efficient collateral structure to
provide the pension scheme with additional protection against
insurer default risk.
� Managing an efficient asset transition to preserve value for the
pension scheme from exclusivity through to completion.
Next steps
If you would be interested
in discussing the
opportunities that these
transactions open up for
your pension scheme,
please contact your usual
LCP adviser or one of
our specialist de-risking
experts. See the back
page for details of how to
get in touch.
LCP ICI £3.6bn buy-in transactions2
LCP helped negotiate competitively-priced collateral structures that provide additional protections if the insurers get into financial difficulties.
Michael Chatterton
Law Debenture, Independent Trustee to the ICI Pension Fund
LCP’s approach:
� Early decision on feasibility
so we only approach
insurers with viable cases.
� Sophisticated value-for-
money analysis to optimise
risk removal.
� Robust negotiations focused
on commercial outcome.
LCP’s process for the ICI Pension Fund
LCP has been the lead adviser on all collateralised buy-ins executed by Legal & General and Prudential over the past five years.
Collateral structure
The contract maintains the simplicity of a traditional buy-in contract and
also includes robust additional protections to further enhance security.
A key feature is to hold assets in a ring-fenced account that is available
to the Trustee should Legal & General or Prudential get into financial
difficulties. The main protections for trustees and sponsors are:
� The assets are managed by the insurers in line with pre-agreed
investment guidelines – providing comfort about the quality of
assets if they are recovered.
� The value of the assets posted by Legal & General and Prudential is
always greater than the contract value, even if this increases over time
(for example, if life expectancy increases).
� The assets are available to the Trustee within short timescales if ever
they are needed.
November 2013
December 2013
February2014
March2014
Refining balance between pricing, size and optimal risk removal
Value-for-money monitoring for Fund
Contract structuring
October2013
January 2014
Data roommade availableonline
Early face-to-face engagementwith insurers
Agreementof key commercial terms
Insurance tender
Key benefits to the ICI Pension Fund
� A clear strategy and focused process ensured insurer
engagement and optimised the economic value of risk removed.
� Design of a leading-edge collateral structure to provide
additional protection for the Fund against insurer default risk
(see below).
� Two buy-in contracts transacted with different insurers to provide
a strong foundation for future competitive de-risking.
Leading adviser in buy-in and
buy-out transactions
A motivatedand well-resourced
practice of over 20 people focused
on your goals
Relevant and up-to-date
experience in structuring
design
Working collaboratively
with large pension schemes
Strong processdesign and a transaction
mindset
LCP: Specialist
buy-in/buy-out adviser
3LCP ICI £3.6bn buy-in transactions
The benefits that LCP provides
LCP is consistently brought in as the specialist independent buy-in/buy-out adviser to work alongside incumbent actuarial and other advisers.
Key benefits to LCP clients
� Realistic expectations of price and terms up-front before any
significant costs are incurred.
� Keen pricing from insurers – insurers value LCP’s project
management and commerciality in the final stages of a transaction
and reward our clients with highly competitive pricing as a result.
� Tailored structuring of transactions to meet your objectives and
reach a successful conclusion.
£900m Collateralised
buy-in with
Prudential
£230m Buy-in with
Rothesay Life
£484m Buy-in with
Rothesay Life
£3bn & £600m
Collateralised
buy-ins with
Legal & General
and Prudential
£347m Buy-in with
Legal &
General
Selected LCP-advised transactions
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LCP is a firm of financial, actuarial and business consultants, specialising in the areas of pensions, investment,
insurance and business analytics.
How LCP can help your pension scheme
Pension schemes and companies of all sizes work with LCP to design and
implement their de-risking strategies, many through buy-ins and buy-outs.
If you would be interested in a meeting to find out more, or discussing the
opportunities that these landmark transactions open up for your pension
scheme, please contact your usual LCP adviser or one of our specialist
de-risking experts below.
Clive Wellsteed
Partner [email protected]
+44 (0)20 7432 6651
Charlie Finch
Partner [email protected]
+44 (0)20 7432 0625
Emma Watkins
Partner [email protected]
+44 (0)20 7432 7757
Myles Pink
+44 (0)20 7432 3067
Buy-in/buyout Consultant Lane Clark and Peacock
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34%LCP has been appointed as specialist adviser on 34% of buy-in
and buy-out transactions over £100m since 2010, more than
any other adviser.