Legal & General Assurance Society has struck its third and largest assured payment policy (APP) transaction since debuting the de-risking solution in late 2019.
The new deal is for a £925m (€1.1bn) policy with the Legal & General Group UK Pension and Assurance Fund. It secures the cashflows to support benefit payments payable to around 2,000 retired and 2,800 deferred members of the defined benefit pension fund.
The transaction is the second APP the insurer has completed with a Legal & General pension scheme. In December 2020 it announced a £400m APP with the Legal & General Group UK Senior Pension Scheme.
Chris Martin, ITS, chair of the trustee at Legal & General Group UK Pension and Assurance Fund, said the APP was “a very significant event in the fund’s lifetime as we move closer to securing our members’ benefits”.
“This is a unique product that removes a large proportion of the investment risk from the fund.”
Legal & General launched its APP solution in December 2019 as part of a £1.1bn transaction with the AIB Group UK Pension Scheme.
In exchange for an upfront premium, APPs provide pension schemes with a pre-agreed series of cashflows, selectively insuring against investment-related risks such as changes in asset yields, interest rates and inflation.
Longevity and wider demographic risk protection can be added subsequently through conversion to a bulk annuity, but are not covered by an APP.
In May this year, £61m of the AIB Group’s APP was converted into a buy-in policy, which Legal & General said demonstrates “how APPs facilitate the de-risking journey”.
Legal & General Group UK Pension and Assurance Fund, the newest user of the APP, was advised on the transaction by LCP, Redington and Gowling WLG.
Laura Mason, CEO, Legal & General Retirement Institutional, said there was clear demand in the de-risking market for innovation “and Legal & General want to be at the forefront of that”.
“With three APPs now transacted and a partial conversion already completed, I’m excited to see real momentum growing with this solution,” she said.
Including APPs and three large longevity swaps, there have been at least £17.8bn worth of deals in the UK de-risking market this year so far.