The ICI scheme has insured more then twice the liabilities of any other scheme, and saved £100m in the process

When it comes to insuring members’ benefits, the ICI Pension Fund leaves other big schemes in the shade. The two deals completed by the 50,000-member scheme in September take the value of liabilities insured in the last two-and-a-half years above £8bn. 

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The scheme has completed 11 deals over this period, using a ground-breaking structure that helped it scoop the Best De-risking Initiative prize at the Engaged Investor Trustee Awards in 2015 and 2016. 

The transactions, with three different insurers, have insured approximately 75% of the scheme’s liabilities. The latest deals also mean that the ICI scheme has accounted for around a quarter of all bulk annuity business written since 2014. 

How ICI did it 

The scheme’s de-risking journey began with a double deal to insure £3.6bn of benefits with Legal and General and Prudential in March 2014. The transaction with L&G is still the largest to be completedby any scheme, at £3bn. 

These contracts cut the time taken to transact from months to week

The deals used ‘umbrella contracts’ that allowed the scheme to bolt further liabilities onto the original agreement. These contracts, set up by the scheme’s legal adviser Allen and Overy cut the time taken to transact on future deals from months to weeks. 

The scheme carried out a number of follow up exercises with L&G and Prudential on these terms through 2014 and 2015 and added Scottish Widows to its panel of insurers this summer, completing a £600m deal in June. 

The umbrella structure effectively moves the scheme to the front of the queue for future deals, according to the scheme’s adviser, LCP. The fact that trustees can complete deals quickly on pre-agreed terms means insurers are keen to work with them. 

It also allows the scheme to move fast to take advantage of movements in buy-in pricing, both in the wider market and for specific profiles profiles of liability. 

This speed of movement was on show in July when the scheme took advantage of market movements after the EU referendum by tying up £750m deal with L&G in the fortnight after the vote. 

LCP partner Clive Wellsteed believes these factors have saved the scheme a significant amount of money.

Even a conservative estimate would put the saving at well over £100m 

“With a knowledgeable and proactive trustee board, well-rehearsed processes and umbrella contracts with insurers already in place, we have been able to achieve considerable savings in insurer pricing,” he said. “Even a conservative estimate would put the saving for the fund at well over £100m over the past two years.” 

The latest deals

The latest two deals cover almost £1bn in benefits, with Scottish Widows insuring £590m of liabilities and L&G taking another £390m tranche.

Cheryl Agius, who leads of L&G’s strategic pension risk transfer team, said the transactions showed the benefit of the long-term relationship that the trustees, their advisers and the insurers had developed.

“Through the certainty and clarity provided by the umbrella contract, clear pricing target discussions and established governance procedures, L&G has been able to price competitively by targeting specific investment and reinsurance opportunities in the knowledge that transactions which meet the trustee’s objectives will be executed quickly and seamlessly,” she said.

We see this becoming a blueprint for how larger schemes will insure their liabilities

ICI Pension Fund chief executive Heath Mottram added: “We are delighted that the fund continues to benefit from competitive pricing on a frequent and ongoing basis due to the strength of our governance and unique contract documentation. We see this becoming a blueprint for how larger schemes will insure their liabilities at scale through buy-ins in the future.”

Timeline of transactions

March 2014; £3bn; L&G

March 2014; £600m; Prudential

Nov 2014; £300m; Prudential

March 2015; £500m; L&G

June 2015; £500m; Prudential

June 2015; £500m; L&G

March 2016; £300m; L&G

June 2016; £600m; Scottish Widows

July 2016; £750m; L&G

Sept 2016; £600m; Scottish Widows

Sept 2016; £400m; L&G