How to run
an effective phased buy-in strategy
LCP was appointed as a specialist de-risking adviser in 2021 to the c£4.5bn BAA Pension Scheme (which is sponsored by Heathrow Airport) to help implement their de-risking framework, following an initial £325m buy-in the Scheme completed with L&G in 2018.
A Joint Working Group (JWG), including senior Trustee and Company representatives, was set up to run the project with advice from LCP. We helped the JWG agree clear metrics up front for the success of the project, defining both the size of the transaction and the pricing levels at which it could be incorporated into the Scheme’s current funding and investment strategies.
All insurers were presented with clear and complete data and information, facilitating the process of pricing the buy-in in a busy market.
Following insurer feedback, we provided detailed analysis of the mortality characteristics of the section being insured, which were different to the Scheme as a whole and thus not represented by the full Scheme mortality experience data. This was used by the insurers to leverage better reinsurer pricing, which they could pass onto the Scheme.
Following initial pricing we moved forward with a shortlist of the two most competitive insurers. A
clear price hurdle was agreed with the JWG which met the transaction metrics defined up front.
Following final submissions, the JWG selected L&G. As key terms were already agreed we could complete the transaction efficiently under the protection of a negotiated price-lock mechanism, which fully protected the economics of the transaction to the point of signing.
Final pricing exceeded the transaction metrics so the buy-in was incremental to the Scheme’s overall de-risking journey. An umbrella contract was established, enabling the Scheme to insure further liabilities with L&G quickly and efficiently under the existing terms should the JWG wish to do so in future.
How we can help
We are market leaders at each stage of de-risking, including planning, investment strategy, transactional services and wind up.
LCP LifeAnalytics is a unique tool that allows you to measure the longevity risk in your pension scheme.
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