We have been working with the ICI Pension Fund since 2013 to help them progressively insure their longevity risk at attractive levels - view the infographic

The background

The ICI Pension Fund (ICI) is one of the largest and most mature DB pension plans in the UK

• £10bn UK pension plan with c56,000 members

• 80% of liabilities are in payment with £500m of annual pension payments

• Broadly 95% hedged against interest rates and inflation

• Longevity identified as dominant risk

The first transaction - In March 2014, ICI insured £3.6 billion of pensioner liabilities through separate buy-ins with Legal & General and Prudential. The £3.0bn transaction with Legal & General remains the largest buy-in or buy-out policy ever executed in the UK. Since then the Trustee has continued to progressively insure their longevity risk with a further seven follow-on transactions. 

Our solution

We have worked with the ICI Pension Fund to develop an effective de-risking blueprint for managing longevity risk. We considered both buy-ins and longevity swaps and concluded that, based on their investment strategy, buy-ins offered a better strategic fit and cost-effective way of hedging longevity.

Innovative umbrella contracts
The key advantage of the umbrella contract approach is that ICI can move quickly to insure additional tranches of liabilities when competitive pricing becomes available. This is because the execution process is limited to documentation of the key “tranche-specific” parameters – for example, how the premium is paid, the timescales for any data cleansing and the parameters for the security arrangements. This is supported by robust monitoring and governance processes to facilitate a smooth execution process.

Technology
ICI use a de-risking dashboard which provides a full picture of both longevity and investment risks

• LCP LifeAnalytics allows ICI to measure their longevity risk and LCP Visualise builds this into into an integrated framework (de-risking dashboard)
• The de-risking dashboard makes key metrics available on a daily basis. This helps them make informed decisions to prioritise which de-risking decisions give the most “bang for the buck”, taking into account the cost and the reductions in both longevity and investment risks

Ready to take advantage of market conditions
Many pension plans found that the outcome of the recent EU referendum vote and the market conditions that followed weren’t great news for their pension plan’s deficit. But ICI were able to take advantage of a short-lived period of higher credit spreads after the vote to complete their 9th buy-in transaction with Legal and General. The £750m buy-in with Legal & General was the Fund’s ninth and second largest buy-in to date brings the total liabilities insured to £7bn out of total scheme liabilities of around £11bn.

The results

The Fund has now insured over £8bn of liabilities since March 2014 across 11 transactions and is the “go to” scheme when insurers on the panel have competitive pricing available.

Continue to explore their de-risking journey in our infographic