UK Pension Insures £5B in ‘Umbrella’ De-risking Deal

An industrial giant’s pension fund has struck a groundbreaking arrangement involving two insurers and billions worth of liabilities.

Legal & General and Prudential have backed a total of £1.8 billion ($2.7 billion) worth of buy-in transactions with the ICI Pension Fund in the UK, as part of an innovative ‘umbrella’ derisking strategy.

The ICI fund offloaded £3.6 billion of liabilities in March 2014 with the two insurers, which remains the UK’s biggest buy-in to date. Since then, four additional transactions have taken place under the same terms, taking the total liabilities transferred to £5.4 billion.

These additional deals mean ICI has insured more than half of its total pension liabilities.

Clive Wellsteed, head of LCP’s pension de-risking practice and lead advisor for the transactions, said the ‘umbrella’ approach meant the pension could “move quickly to insure additional tranches of liabilities when competitive pricing becomes available.”

With most of the terms already agreed under the March 2014 deal, the ICI pension only had to agree “tranche-specific parameters,” Wellsteed added. These included payment of the premium, timelines for data cleansing, and “parameters for the security arrangements.”

LCP said the ICI pension has insured “over three times the amount of longevity risk through buy-ins than any other UK pension plan.”

CIO’s annual special issue on derisking and liability-driven investment is published next month. Register now to receive your copy.

Related: Mega-Buyouts Land in the UK & The Day After the Buyout…