The transaction with Aviva, which insures 15,000 members, involved the sponsor supplying a loan to cover the scheme’s illiquid holdings.
The Michelin Pension and Life Assurance Plan’s 15,000 members have been insured through a full scheme buy-in. The transaction is also Aviva’s largest ever external bulk annuity deal.
It involved the in-specie transfer of illiquid assets held by the scheme to the sponsor. Lead adviser XPS Group said this helped the scheme secure a competitive price for the buy-in.
Michelin made a loan to the scheme to cover the value of the majority of the illiquid assets, allowing the deal to complete and the assets to run off. A small portion of the illiquid portfolio was sold on the secondary market.
Sarah Cave, senior deal manager at Aviva, said the scheme’s “clear strategy” helped get the transaction through. “This deal further demonstrates Aviva’s capability for structuring transactions to meet specific client needs,” she added.
Vincent Dormieux, chair of trustees for the Michelin Pension and Life Assurance Plan, said: “The trustee is delighted to have improved the long-term security of members’ benefits by completing this buy-in transaction with Aviva. I’d like to place on record our sincere thanks to our full advisory team and to the Michelin Group for its support through the process.”
Doug Brown, CEO of insurance, wealth and retirement at Aviva, said the deal showed his company was “well positioned to carry out large-scale transactions in addition to our capability in the small and medium scheme market”.
A busy second half
Stephen Purves, head of risk settlement at XPS Group, said: “We’re really pleased to have led on this important transaction and to have helped the trustee secure its members’ benefits with Aviva.
“We were always expecting to see lots of large transactions complete in the second half of 2024 and we developed a strategy to make this transaction stand out in a busy market.
“This included simplifying our transaction requirements before going to the insurers and an ‘in-house’ solution to deal with the plan’s illiquid assets.”
Bulk annuity volumes were lower in the first half of this year than initially expected. Still, consultants have predicted an uptick before the end of 2024.
In a new report, LCP said this year’s bulk annuity market was on track to be slightly smaller in terms of total volume than last year’s record £49.1bn.
This was in part due to other endgame options emerging for defined benefit schemes. However, with demand for bulk annuities still high LCP said it expected annual volumes to remain around £50bn for the next few years.
It also said insurance company capacity could handle this demand “comfortably” after a period of insurers investing in and streamlining their operations, as well as three new entrants to the market.
However, LCP warned that there were still key challenges for schemes ahead when transitioning from buy-in to full buyout, requiring careful planning to avoid bottlenecks.
Charlie Finch, Partner and report author, commented:
“Last year we saw a seismic shift in the market with demand for buy-ins and buy-outs rocketing on the back of improved funding levels,” said Charlie Finch, partner at LCP.
“Coming into 2024, we’ve seen dynamics stabilise and volumes reach ‘cruising altitude’. As schemes assess their strategic endgames and insurers ramp up their capacity, we see a healthy and buoyant market that serves the needs of schemes moving to insurance – both now and in the future.”
Imogen Cothay, also a partner at LCP, added that the capacity in the market had led to “the most competitive full scheme pricing in years”, giving schemes the power to ask more of insurers, such as prioritising member service.
