JLT EMPLOYEE BENEFITS. Buy-inSure The solution to your 5m 60m pensioner buy-in transactions

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1 JLT EMPLOYEE BENEFITS Buy-inSure The solution to your 5m 60m pensioner buy-in transactions

2 Pedigree The successful completion of a buy-in transaction is built on a foundation of robust processes, strong insurer relationships and significant market experience. Given this, and the significance of any such transaction, we strongly believe that any scheme seeking to complete a pensioner buy-in should appoint an experienced adviser, with a track record of completing deals, to run the exercise. JLT Employee Benefits (JLT EB) has a long and well-established reputation for guiding clients with defined benefit pension schemes through de-risking transactions, from initial contact with insurers, to negotiating terms and the signing of contracts and placing business with all major buy-in/buyout providers. Our team has completed in excess of 200 buy-in and buyout transactions in their current and previous roles, ranging in size from below 1m to in excess of 1bn, covering deal structures from conventional bulk purchase annuities to fully bespoke de-risking solutions. Mark Wood, Chief Executive, JLT Employee Benefits 2

3 Contents Buy-inSure in a nutshell... 4 Robust and clearly defined process...5 Enhanced insurer engagement...6 Condensed transaction timelines...7 Enhanced contractual terms...8 Optional, pre-packaged legal review and opinion...9 Optional data cleanse service...10 Alternative option to obtain underwritten bulk annuity quotations Optional on-going monitoring against triggers About us

4 Buy-inSure in a nutshell Buy-inSure has been designed to provide a robust pensioner buy-in solution for schemes wishing to secure between 5m- 60m of pensioner liabilities on a fixed-fee basis. Whilst the large transactions in the buyout and buy-in market continue to grab the headlines, the majority of schemes wishing to transact in this market remain small by comparison. Market analysis indicates that transactions below 60m have typically accounted for over 90% of the total number of deals completed in any calendar year. Schemes wishing to make these smaller transactions have historically struggled to obtain the competitive pricing and flexibility offered to the larger end of the market and to find a process which is both effective and cost-efficient. Buy-inSure looks to address these issues by offering trustees and sponsors: A robust and clearly defined process Enhanced insurer engagement Condensed transaction timelines Enhanced contractual terms Optional, pre-packaged, cost effective legal review and opinion Optional data cleanse service Alternative option to obtain underwritten bulk annuity quotations Optional on-going monitoring against triggers Whilst other propositions in the market may provide a limited number of the above components, Buy-inSure brings together all of the above elements. This means that schemes wishing to insure between 5m- 60m of pensioner liabilities can be assured they will get full value for money and could be able to transact in as little as two months from going to market. Smaller transactions have historically struggled to obtain the competitive pricing and flexibility offered to the larger end of the market 4

5 Robust and clearly defined process We have developed a robust process designed to optimise the likelihood that a transaction will be completed at the right price and in a timely manner. This in turn ensures greater traction from insurers, enabling an enhanced competitive process. Both trustees and sponsoring employers will be required to sign up to the process, with key milestones and timescales being determined and agreed at outset. Buy-inSure Clear Steps Process The process includes clear steps to enable schemes to: Map Objectives Agree Triggers Identify & Solve Asset Issues Competitive Broking Exercise Transact Effectively Trustees will also be expected to fully assess a specification of scheme benefits prior to the quotation process commencing. This has a number of benefits, not least preventing the purchase of an insurance policy that does not exactly match the benefits in payment. The process is also well aligned with regulatory pressure to cleanse data and ensure 100% accuracy. Our company has worked with JLT EB for several years now and they continue to consistently identify, scope and arrange a high proportion of the de-risking business opportunities that they advise on. We actively track the advisers who are successful at providing appropriate de-risking solutions for clients and their strong track record in this area means JLT EB s clients are extremely likely to achieve a successful outcome by working with them. Managing Director, Annuities Buy-inSure Panel insurer A 5

6 Enhanced insurer engagement Historically it has been difficult for schemes to obtain buy-in quotations from several insurers for smaller transactions. Leveraging our reputation within the market, we have negotiated a strategic agreement with a number of carefully selected insurers, who are each actively seeking to grow their exposure to this part of the buy-in market. By utilising Buy-inSure, schemes will optimise the number of quotations, leading to a more competitive process and potentially lower prices. Although Buy-inSure does not guarantee each insurer on the panel will provide a quotation, it does significantly enhance the potential for them to do so, due to the quality and clarity of the process adopted, as well as our reputation. In addition, all insurers have committed to our programme of continual monitoring to ensure their terms and pricing remain competitive within this market. We anticipate that other insurers may wish to be included on the panel over time and each will go through a rigorous review procedure before being considered as a provider within Buy-inSure. However, in order to gain maximum levels of engagement from on-panel insurers and to secure a competitive process, we will strike a careful balance in terms of the maximum number of insurers on the panel. It shouldn t be underestimated just how important the balance of the panel of insurers is. Too many insurance companies and the engagement from each is reduced, too few and the competitive tension is not maintained. This is something we ll continue to monitor to help maximise the value we can achieve for our clients. Martyn Phillips Director, Head of Buyouts, JLT Employee Benefits Schemes will optimise the number of quotations 6

7 Condensed transaction timelines By working in partnership with the group of insurers who have signed up to Buy-inSure we have been able to streamline the processes required for each step of the buy-in, making it possible for schemes to react to positive market conditions quickly and efficiently. Condensed Transaction Timeline -2 Weeks 0 Weeks 2 Weeks 4 Weeks 6 Weeks 8 Weeks (Go to Market for Quotations) Feasibility Study Preparatory Work Initial Broking and Analysis (From 6 weeks) Final Broking & Analysis (From 3 weeks) Sign Contracts Decision Point We will ensure that any new insurer interested in providing quotes under the proposition is able to meet the minimum timescale requirements set out in our agreement with the existing insurers. JLT Employee Benefits organised a competitive tender using Buy-inSure, resulting in a transaction completing in under six weeks at a good price. With the support of the employer, the trustees have a history of insuring benefits for our pensioners. As such, we believe this transaction to be a very positive step for the scheme and its members. Alistair Wesley, Group Pensions Manager, J. & J. Denholm Limited 7

8 Enhanced contractual terms Many buy-ins are delayed due to lengthy negotiations around enhanced contractual terms, which in some instances lead to pricing terms moving against schemes, and transactions becoming more costly or ultimately failing to get past the finishing post. To negate this, working together with pensions law firm Pinsent Masons, we have pre-negotiated with all participating insurers the inclusion of a number of enhanced contractual terms as part of their standard conditions for any pensioner buy-in completed through Buy-inSure. Some of these terms, which differ from insurer to insurer, will give schemes a higher degree of flexibility once the contract is in place and offer improved protections and powers for the trustees under the contract. Enhancements include the ability to change from RPI to CPI linked increases at a future date on transparent terms and flexibility around reassignment and entry into the PPF, should this occur in the future. The enhanced terms are part of the packaged proposition and enable transactions to take place with improved terms in a timely and efficient manner as the pre-agreed contract with each insurer is ready to be deployed on each and every transaction, without the need for costly negotiations. Over the years we have successfully worked with JLT EB on a number of transactions for schemes of varying sizes and have found their processes to be well structured and robust. They are a professional team with a full and well rounded understanding of de-risking. In our experience, trustees with whom we have transacted through JLT EB have received a solution that meets their specific needs. CEO Buy-inSure Panel insurer B 8

9 Optional, pre-packaged legal review and opinion We would expect that schemes will want legal opinion and sign off of the insurer contract and that they will want to ensure that this is provided efficiently, does not obstruct progression through the buy-in process and is of high quality. With this in mind, we have partnered with Pinsent Masons so that they can provide a legal review and opinion of each insurer s pre-negotiated contract under Buy-inSure. This legal review, which will include presenting an understanding of the key differentiators between the various insurers contracts, can form part of the selection process of an insurer. Whilst it is possible for schemes to utilise their own legal advisers for the review, this may result in delays in the process. There is also the risk of incurring much higher fees than the fixed-fee charge offered by Pinsent Masons. If schemes wish to use this service, a contract will be arranged directly with Pinsent Masons. An understanding of the key differentiators between the various insurers 9

10 Optional data cleanse service It is well documented that inaccurate member data can make a substantial difference to the pricing offered by insurers. By simply obtaining marital statuses and spouses dates of birth, or completing existence checks, the cost of a buy-in could be reduced to a more affordable level through the reduction or removal of prudent margins within insurers pricing and reserving calculations. Through Buy-inSure, we are able to provide a data cleansing service, including a tracing service for marital statuses and spouses dates of birth. Schemes can choose for us to carry out: 1. An upfront data cleanse exercise, only approaching the insurers after the exercise has been completed. This ensures the scheme receives the most competitive pricing from the insurers. 2. A data cleanse exercise run in parallel to the buy-in quotations. This ensures that there is no delay in the buy-in broking exercise. The results of the data cleanse are then incorporated in an updated quotation to be provided by the insurer before a transaction proceeds. the cost of a buy-in could be reduced to a more affordable level 10

11 Alternative option to obtain underwritten bulk annuity quotations For traditional bulk annuities, which form the majority of transactions, insurers use only age, sex, pension size and postcode data to assess and price the risk they are being asked to take on. Transactions are completed based on average health assumptions for the members included. Often, for schemes with smaller numbers of pensioners or where a few pensioners represent a large proportion of pensioner liabilities, the trustees and scheme sponsor have a good insight into the existence of any potential health impairments. These could be reflected in more accurate bulk annuity quotations if a medically underwritten process was followed. At the early stages of Buy-inSure, we would discuss whether a medically underwritten approach is likely to lead to more competitive quotations compared to a conventional buy-in broking exercise. If so, we would run an underwritten bulk annuity broking exercise, engaging with the insurers currently operating in this area with whom we have developed a streamlined process. As part of this process, insurers would normally underwrite members by asking the trustees to issue a short health questionnaire to all scheme members to be included in the transaction, followed up by targeted general practitioner reports in certain cases. Based on the results, the insurers would provide fully underwritten prices, giving more accurate, and potentially more competitive, quotations. The timescales for an underwritten exercise would be slightly longer due to the need to collect and analyse individual health data. A medically underwritten buy-in could, in some cases, offer schemes savings of up to 10% compared to a conventional bulk annuity. We ve worked hard with the main players in this market to reach agreement on a common process, for the first time allowing trustees to obtain multiple underwritten quotations from a single underwriting process and thus ensure a competitive result. Martyn Phillips, Head of Buyouts, JLT Employee Benefits 11

12 Optional on-going monitoring against triggers It is recognised that entering a buy-in process is a material investment of both time and money by trustees and scheme sponsors. Traditionally, if a scheme attempting a buy-in has not been able to transact immediately the position has normally resulted in the deal collapsing, even if the price was only a few percentage points away from where it needed to be. This often resulted in a feeling of wasted consultancy spend. In developing Buy-inSure, we have focussed on offering optional extras which may help to ensure this spend is not wasted, even if a transaction does not proceed immediately. We establish the feasibility of a transaction before proceeding with any buy-in process, to try and ensure that trustees and sponsors only enter into Buy-inSure if a deal is a realistic possibility. However, with current market volatility there is always the chance that market conditions move against a scheme whilst quotations are being obtained, potentially making a transaction looks less desirable than it did at the beginning of the process. If this were to occur, to increase the possibility of a successful transaction, we offer an additional service to monitor the buy-in price against pre-agreed trigger points. This will enable schemes to react quickly when markets are favourable and allow them to transact at the right opportunity. Through Buy-inSure, we are able to provide two levels of price monitoring, depending on how far along the process a scheme has moved: 1. We will monitor insurer prices against trigger points set by the scheme and advise when their requirements may be about to be met (allowing guaranteed binding quotations to be quickly received). 2. If a scheme has progressed to guaranteed quotations and has chosen a preferred provider but is not in a position to transact due to adverse movements in market conditions, many of the insurers are prepared to monitor their price against pre-agreed trigger points for a limited period of time, until the price moves to an acceptable level. In addition, once conditions are met, we will check that the quotation remains competitive compared to the buy-in market. By monitoring prices in this way, another element of competitive tension can be added to the process, as a selected insurer has the ability to reduce their price to hit the trigger regardless of changes in market conditions. A transaction for 5 million of liabilities carries the equivalent level of complexity as a transaction of 50 million or even 500 million. I believe, through Buy-inSure, that for the first time trustees and sponsoring employers looking to transact 5 million or 60 million can expect equivalent levels of competitive tension, enhanced contractual terms, flexibility and price monitoring offered to their peers who are looking to transact 500 million. Mark Wood, Chief Executive, JLT Employee Benefits 12

13 Buy-inSure is the solution for schemes wishing to buy-in 5m- 60m of pensioner liabilities on a fixed-fee basis. To find out more about how Buy-inSure could help you as part of the de-risking strategy for your defined benefit scheme, please contact: buyouts@jltgroup.com 13

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15 About us The JLT EB Buyout Team has a long and well-established reputation for guiding clients with defined benefit pension schemes through de-risking transactions, from initial contact with insurers, to negotiating terms and the signing of contracts and placing business with all major buy-in/buyout providers. Our team have a combined experience of over 25 years of advising on bulk annuity deals and have completed in excess of 200 buy-in and buyout transactions in their current and previous roles. We have advised on total deals worth over 10bn, representing more than 20% of total market trades to December We are able to advise on a wide range of transaction types, varying in size from below 1m to in excess of 1bn, covering deal structures from conventional bulk purchase annuities to fully bespoke de-risking solutions. Due to the specialist nature of this activity, our team s sole focus is on helping clients with these types of transactions. This ensures we have up-to-date knowledge of the market from working with insurance providers on a daily basis and reflects JLT EB s commitment to this area. We also benefit from a number of our senior leadership team having previously held prominent positions within providers from the bulk purchase annuity marketplace. This gives us an important insight, which enables our team s processes and propositions to be well aligned with insurers own capabilities, processes and requirements. Visit our website for more details: 15

16 JLT Employee Benefits The St Botolph Building 138 Houndsditch London EC3A 7AW Tel +44 (0) Fax +44 (0) JLT Employee Benefits. A trading name of JLT Benefit Solutions Limited. Authorised and regulated by the Financial Conduct Authority. A member of the Jardine Lloyd Thompson Group. Registered Office: The St Botolph Building, 138 Houndsditch, London EC3A 7AW. Registered in England No VAT No /14.