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Pensions & benefits

The impact of
Brexit on covenant strength

The background

The sponsoring employers and guarantors to five schemes were part of a global group providing property and casualty insurance to policy holders and were required to comply with Solvency II legislation.

The Trustees of these schemes had not previously taken independent covenant advice, as they had historically considered their covenant to be strong. However, following the UK’s vote to leave the European Union, Management informed the Trustees of a corporate restructuring to move operations overseas.

Our solution

Management requested that the Trustees agreed to a change in the guarantors and employers providing covenant support to the Schemes. We were appointed to provide the Trustees with an assessment of the impact of these proposed changes on the Schemes’ covenant strength.

We assisted the Trustees in understanding their “before” and “after” covenant strength and access to value within the group in the context of these changes and to inform their triennial valuation. This advice included commenting on the impact of Solvency II requirements on covenant strength.

The results

Following our advice, the Trustee’s were able to conclude their triennial valuation. We also assist the Trustees in helping them to conclude upon whether to certify their guarantees with the PPF on an annual basis.

How we can help

Covenant consulting

We help trustees understand and monitor the employer covenant.

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Getting business value out of Solvency II

We help organisations to unlock business value from their Solvency II processes.

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Strategic journey planning and risk management

We help clients identify, manage and monitor pensions risks in an integrated way.

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