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

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.”

For more stories like this, sign up for the CIO Alert newsletter. 

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.

The activist investor joins John Paulson in calling for the insurer to spin off its life and mortgage insurance divisions into independent public companies.

AIG is “too big to succeed”—so claimed Carl Icahn in an open letter to the insurance company Wednesday.

The activist investor, who revealed on Twitter that he owned a “large stake” in AIG, called for the insurer to be split into three public companies to “enhance shareholder value.”

“If nothing is done, returns and AIG’s competitive position will continue to suffer as the SIFI regulation is fully implemented.”He proposed that the company spin off its life and mortgage insurance subsidiaries, creating three independent firms small enough to avoid the regulatory burdens AIG now faces. Right now, the insurer’s size earns it a systemically important financial institution (SIFI) designation from the Financial Stability Oversight Council, making it the subject of enhanced regulation.

In his letter, Icahn also accused AIG of “severely” underperforming its peers, and requested that the company embark on a “much needed” cost control program to close the performance gap.

For more stories like this, sign up for the CIO Alert newsletter. 

In his letter, Icahn quoted hedge fund manager John Paulson as supporting the proposed spin-off.

“AIG is frankly overdue in following in the footsteps of all other major multi-lines in breaking up Life and P&C into separate companies,” Paulson said. “By separating into three independent companies, reducing unnecessary corporate overhead, operating at average industry returns, and buying back stock, AIG can trade at over $100 per share—66% above its current price.”

Separate companies, Icahn added, would be “more focused, more efficient, generate better returns, and, as a result, command significantly higher market valuations.”

“If nothing is done,” Icahn wrote, “returns and AIG’s competitive position will continue to suffer as the SIFI regulation, including its costs and capital requirements, is fully implemented.”

AIG is the latest in a string of high-profile companies Icahn has attempted to influence. Last year, Icahn addressed a letter to Apple CEO Tim Cook suggesting the company buy back its stock, as its shares were “dramatically undervalued.”

He also proposed in early 2014 that eBay split with PayPal, a spin-off that officially occurred this summer.

AIG’s share price has climbed 22% in the 12 months to October 28, according to Bloomberg, compared to the S&P 500’s 5.4% gain. The company’s shares have been trading between $55 and $65 since the summer, the first time the shares have been this high since September 2008.