L&G Backs £230M De-Risking Deal | Chief Investment Officer

Legal & General (L&G) has secured a £230 million ($325 million) medically underwritten bulk annuity deal with the Kingfisher Pension Scheme, the largest deal of its kind in the UK.

Medical underwriting involves gathering data on individual members’ health, which “allows the insurer to form a more robust view on life expectancy and to price the risk with more certainty,” L&G said in a statement.

The insurer employed “several innovative features” for the transaction, it said. These included “top slicing”—targeting a small number of members that account for a disproportionate part of the fund’s liabilities—and pricing linked to a basket of government bonds.

“We believe the growth in the top slicing approach is set to continue and, for many schemes, will be the first step on a journey to full buyout,” said Cheryl Agius, head of strategic business for pension risk transfer at Legal & General. “Medically underwritten bulk annuities were traditionally viewed as a solution for smaller schemes, and the emergence of top slicing helps open up medical underwriting to medium and larger schemes as well.”

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The transaction secures benefits for 149 members of the £3.1 billion pension for former employees of the UK home improvement retailer.

The buy-in was “another important step” towards the pension fund’s goal of self-sufficiency by 2030, said Clive Gilchrist, independent trustee and chair of the Kingfisher Pension Scheme trustee board.

Late last year L&G entered the Dutch de-risking market for the first time, re-insuring €200 million from ASR Nederland. The group has also been shortlisted in CIO’s forthcoming European Innovation Awards.

A 10-member group of UK public pensions has finalized initial plans to pool assets, creating a £33 billion ($46.7 billion) collaboration.

“It is clear that there are substantial potential benefits from a group of successful like-minded funds coming together to share the expertise they have.”The group—known as the ‘Access’ pool—was joined this week by the £3.6 billion pension for the county of Hertfordshire, one of the last local government pension schemes (LGPS) to declare its pooling plans. All LGPS funds are expected to align themselves with one of the collaborative projects emerging across the UK by the summer.

The pensions aim to save between £190 million and £300 million a year once they have successfully pooled their mandates, according to a statement released on behalf of the pool by the Essex Pension Fund.

“It is clear that there are substantial potential benefits from a group of successful like-minded funds coming together to share the expertise they have,” said Kevin McDonald, director for the £4.9 billion Essex pension. “In addition there are already synergies in investment approach, which helps funds maintain their crucial input into their strategic asset allocation and helps manage their specific liability and cash-flow requirements whilst delivering scale benefits.”

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The 10 funds “will work collaboratively and will have an equitable voice in governance,” said Essex Councillor Rodney Bass, chair of the pension fund. Each fund will continue to make its own asset allocation decisions using pooled mandates arranged by Access.

“Once operational, the pool will evolve its approach to meet the changing needs and objectives of participating funds and be open to innovation that will enable it to better serve the pool’s participants,” Bass added.

Plans to bring together LGPS assets into pools of £25 billion or more are “ambitious,” the statement said, and “the risks should not be underestimated.”

The Access pool is “keen to explore LGPS-wide collaboration for the creation of a national infrastructure investment platform,” it added, indicating its support for the idea raised last week by UK Chancellor George Osborne.

There are seven proposed pools for the 89 local pensions across England and Wales, according to the LGPS Advisory Board, although this number is expected to fall, with the government targeting six merged pools. The £25 billion London CIV—which caters for the UK capital’s 33 local pensions—is the most advanced, with two sub-funds already operational and more expected later this year.

Another early adopter, the £10 billion collaboration between the London Pension Fund Authority and the Lancashire County Pension Fund, is in talks with several other LGPS funds including Greater Manchester, Merseyside, West Yorkshire, and Berkshire. If successful, the resulting collaboration would combine more than £45 billion in assets.

Elsewhere, eight pensions from the Midlands region of England aim to create a £35 billion collaboration, the ‘Brunel’ project could hit £26 billion between as many as 11 funds, and the ‘Border to Coast’ effort aims to reach £25 billion. The eight Welsh LGPS funds are in talks over a £12 billion pool.