M&G plc (“M&G”) has launched its Value Share Bulk Purchase Annuity (“BPA”) proposition by completing a c.£500m transaction with a private Corporate Sponsor and its UK Pension Scheme, insuring c.3,200 pensioner and deferred members.
M&G’s newly launched Value Share BPA proposition is an innovative alternative to a traditional buy-in. The first of its kind, this structure allows Trustees to insure the Scheme members in exactly the same way as a traditional buy-in transaction, continuing to place members’ security at the heart of the transaction, while also allowing Corporate Sponsors to participate in the risk and reward generated from insuring their well-funded UK pension schemes.
The BPA market in the UK has undergone significant growth in recent years, with transaction volumes reaching record levels in 2023 and similar levels expected this year, as market volatility and increased scheme funding levels have prompted Trustees and Sponsors to seek to secure their pension obligations.
M&G re-entered the bulk annuity market in September 2023 and has since written c.£1,400m of new business. M&G was a founding member of the BPA industry with an existing annuity book of c.£15bn with over 400 transactions completed between 1997 and 2016. M&G recently appointed Kerrigan Procter, as Managing Director of its Corporate Risk Solutions business, who will join in January 2025. Kerrigan will lead M&G’s ambitious growth strategy in the UK pensions de-risking market, with the company expecting to write significant volumes of Value Share BPAs over the coming years.
Clive Bolton, Life Insurance CEO, M&G plc said: “This ground-breaking Value Share BPA transaction provides approximately 3,200 pension scheme members with the ultimate security of a buy-in, while sharing the financial risk and upside with the Corporate Sponsor. This significant de-risking milestone has been made possible thanks to the strong alignment of interests, collaboration and commitment between all parties involved.
“By completing the first ever BPA transaction that shares value with the Sponsor, we are showcasing our ability to create innovative solutions that address our clients’ requirements. This has the potential to transform the market by providing an alternative option for sponsors of large UK pension schemes to consider as part of their de-risking endgame. We look forward to working with clients and advisers as we tailor this solution to meet the needs of Corporate Sponsors whilst securing the future pensions for the Scheme members.”
Alison Fleming, Partner, PwC said: “We are thrilled to have supported the Sponsor as lead adviser on this transaction, including both the buy-in and the structuring, set up and commercials for the Captive Reinsurer. Implementation of this ‘first of its kind’ structure is the culmination of our work with the Sponsor on pensions over a number of years. The solution we have achieved ultimately enables the Trustee to achieve their derisking objectives and secure members’ benefits, whilst enabling the Sponsor to access risks and rewards that would be passed to an insurer in a more traditional transaction. We would like to acknowledge the hard work and collaboration from the Sponsor, Trustee, M&G and all the other advisers on this transaction.”
Deborah McWhinney, Risk Transfer Principal, Mercer said: “The Mercer team is very proud to have guided the Trustee on their journey to fully secure member benefits in our roles of Risk Transfer specialist, Scheme Actuary and Investment Adviser. The Value Share BPA transaction represents an impressive outcome for the Trustee Board and reflects their dedication in achieving their de-risking objective for their members.”
The insuring entity is The Prudential Assurance Company Limited (“PAC”), M&G’s wholly-owned subsidiary offering life and pensions solutions. A Captive Reinsurer was established in Guernsey to participate in both the upside and downside of the buy-in transaction alongside PAC. PwC acted as lead transaction adviser, including advising the Corporate Sponsor on the buy-in and captive implementation. Legal advice was provided to the Sponsor by CMS and to M&G by Eversheds. The Trustee was advised by Mercer and Macfarlanes. The Captive Reinsurer received advice from Carey Olsen, Marsh McLennan (Oliver Wyman and Mercer) and PwC, and will use SRS Management Guernsey Limited as their insurance manager.
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