In a deal that demonstrates a whole new approach to pensions risk management, Allen & Overy has advised the trustee of the ICI Pension Fund on eleven bulk annuity insurance policies (or buy-ins). Taking place over a two-and-a-half year period, this has substantially de-risked the Fund on an unprecedented timetable.

The Trustee built on two initial policies covering GBP3.6 billion of pensioner liabilities executed in March 2014. A total of eleven deals have now been done in just two-and-a-half years, covering GBP9 billion of liabilities. The deals have been done with three insurers, with whom A&O negotiated “umbrella” agreements so that subsequent deals could be done in a matter of days. Before this structure, standard buy-in policies would commonly take many months to negotiate, in which time pricing can change substantially. The most striking example of how this worked to the Trustee’s benefit was a GBP750m deal completed in just two weeks following the Brexit vote, when the Trustee was able to take advantage of unusual market conditions.

The fund provides pensions to around 50,000 pensioner members. The insurance policies are an asset of the fund delivering payments to cover a significant proportion of the liability to pay members. The transaction therefore reduces risk within the fund by ensuring an income stream without the investment, longevity or inflation risk inherent with investing in non-matching asset classes.

Neil Bowden, pensions partner commented: “It has been a real privilege to help the trustee on its recent journey, insuring GBP9bn of pension liabilities over the past two-and-a-half years. The key moment was putting in place an umbrella contract with insurers that has allowed eleven separate deals over that time. The trustee has also worked incredibly hard on its governance and planning processes to ensure that it can meet the commercial timetables that are often difficult for trustee clients.”

Philip Jarvis, insurance partner at Allen & Overy commented: “A number of the individual deals in this series are ground-breaking in their own right, both in terms of size and speed of execution. When put together in such a short space of time they show a wholly new approach to managing risk in a UK pension scheme.”

Partner Philip Jarvis led on the deals, assisted by senior associate Kate McInerney. Partner Neil Bowden and senior associate Andy Cork advised on pensions aspects. Derivatives advice was provided by senior associates Andrew Lauder and Tom Roberts. Associate Revathi Srinivasan provided banking advice and Karishma Brahmbhatt advised on data protection issues.