LV= is a worthy winner of this category for its role in addressing the challenges and risks in its acquisition of Teachers Assurance, a member-owned mutual friendly society.
Among the businesses transferred to Liverpool Victoria Financial Services (LVFS) was the ring-fenced Teachers Assurance Fund (TA fund), which was responsible for making payments to cover all liabilities of the Teachers Assurance Group Pension Scheme (TAGPS).
However, TAGPS exposed the TA fund to significant risks, notably long-tail longevity and inflation risks and considerable market risk.
These exposures resulted in volatility in the surplus position of the TA fund and a material risk that increased contributions would be required in future to support the scheme.
This was of significant concern given the TA fund is in run-off and distributing surplus to its with-profits policyholders. The small size of TAGPS was another major concern as it had the potential to make it very difficult to attract buy-out providers in what is a very busy and competitive market.
LVFS engaged with actuarial consultancy Lane Clark & Peacock to find a solution.
Thorough preparation of the tender pack made LVFS easier to do business with, and despite TAGPS being a very small scheme, it attracted a range of buy-out bidders.
This enabled all pension benefits to be fully bought out while also improving the capital position of the TA fund and speeding up the distribution of surplus to policyholders.
A full buy-in contract with Rothesay Life was completed on 7 February 2019 and following the triggering of the wind-up on 11 September 2019, this is progressing to a buy-out.
The buy-out will result in the responsibility for meeting scheme members' benefits being transferred to Rothesay Life.
Some of the benefits of the transaction include an increase of over 100% in Solvency II capital coverage for the TA fund. There has also been a rise in the special bonus rate for the TA fund's with-profits policyholders, which is 0.5% of asset share per year.
Furthermore, the deal has reduced the complexity for LVFS when the TA fund merges with LVFS in 2027.
James Pratt, lead actuarial manager: capital efficiency at LV= says there were two main challenges with this deal, firstly the position of the TAGPS in the LV= corporate structure, and secondly the very small size of TAGPS.
He notes there were three key stakeholders with slightly different aims that needed to be managed.
For example, LV= members wanted the risks from TAGPS transferred externally at a price that could afford to be fully paid by the ring-fenced with-profits fund, without recourse to the rest of LV=.
Meanwhile, TAGPS members, represented by the TAGPS trustee wanted increased security of members' benefits without giving up any benefits.
"So, we had to carefully position TAGPS as being a very easy transaction for the buyout providers to execute on," says Pratt.
Reviewing trends in the longevity risk transfer market, Pratt says: "It's been well documented that the market has been very busy in the last couple of years, with record deal volumes and lots of pension schemes queuing up for transactions. From what we hear around the market we expect 2020 to be more of the same."
