In an emailed release, IFC said it is facilitating the transaction through an upfront contribution of approximately £500 million to the RSA-sponsored schemes Royal Insurance Group Pension Scheme and Sal Pension Scheme.
According to IFC, the PIC buy-in removes balance sheet exposure to pension risks that are non-core to the group’s business by transferring substantially all remaining economic and demographic risks associated with the two pension schemes to what was described as a “strong and specialised” insurance counterparty.
Among other things, the transaction also eliminates IFC’s obligation to contribute £75 million annually to the schemes and releases around £150 million of capital. In aggregate, said IFC, the amounts nearly equate to the upfront contribution mentioned above.
“The current market environment provides an excellent opportunity to remove UK pension exposure on IFC’s balance sheet,” noted IFC executive vice president and chief financial officer Louis Marcotte. “This transaction represents a cost-effective de-risking, with the upfront payment approximately equal to the remaining annual funding contributions and the capital released.
“Meanwhile, the key metrics related to our RSA acquisition continue to be very strong, and the buy-ins strengthen our ability to pursue growth opportunities.”
In its own announcement, PIC highlighted that the pension liabilities deal spans 40,000 RSA UK pension scheme members and is the biggest ever bulk annuity transaction from pension schemes to an insurer.
“We are proud to have completed an extremely complex bulk annuity deal, the largest pension scheme to insurer transaction the market has yet seen,” commented PIC origination structuring head Uzma Nazir.
“From pricing during the unprecedented volatility of the LDI (liability-driven investment) crisis in the autumn of last year to structuring the buy-in to address the issue of asset suitability, this transaction overcame many of the hurdles that very large pension schemes face as they accelerate their de-risking plans in light of rising gilt yields.”
Meanwhile, IFC added that around £0.6 billion of the pension schemes’ assets will be liquidated over the next 12 to 18 months, proceeds of which will be transferred to PIC, as a result of certain regulatory restrictions.
