LGRI podcast transcripts

Table of contents:

1. What to expect in 2022

2. Looking ahead to 2021

3. L&G's global PRT business - Reflecting on the year so far


What to expect in 2022?


[Start of recorded material at 00:00:00]


Paige W:               Welcome back both.  Before we delve straight in, please can you tell our listeners a bit about how your roles fit together, as I know you’ve been working closely together over the past year or so.


Sheena McE:         Yes, absolutely, Paige.  We found that there are many multinational corporates who consider pensions risk at a global level, and what sets Legal & General apart is that we are the only insurer who can write direct PRT business in both the US and the UK.  As a result, John and I have been working closely together to ensure our businesses are aligned and that we can provide joined-up solutions to sponsors.


We’ve worked with sponsors to transfer liabilities in both the US and the UK, with the benefit of economies of scale.  And in 2020, we announced our first global transaction with IHS Markit, and then last year, we announced our second global transaction with Evonik.  We really pride ourselves on our ability to partner with sponsors, and together with our market leading asset management firm – which also has a presence in the US and the UK – as a global group, we’ve been able to create innovative and collaborative solutions through working together closely.


Paige W:               Just shows how the use of modern technology allows two teams across two different continents to work closely together, especially through a time when travel was very much restricted.  So before we delve into the trends and what we expect for 2022, can you both provide an overview of how the UK and US de-risking markets performed last year, in 2021?


Sheena McE:         Yes, I’ll go first.  So the big story in the US market is that we had a record-breaking year last year with estimated 38 to 40 billion in total market volume.  That beats the previous record of 36 billion from 2012 and it also represents an over 10 billion increase from last year.  We saw some very large jumbo transactions, which contributed to this.   There were 10 transactions that were close to or larger than 1 billion last year, which, in total, added up to around 22 billion in premiums.  And prior to last year, the most jumbo transactions in a year was 5, so that’s really quite a significant change.  


We did see less smaller transactions with total premiums for less than $500 million deals, decreasing by around 20% from 2020 to 2021.  Which is interesting, and I will have a keen eye on how the 2022 market plays out to see if this trend is a one-off or not.  I’ll end this question with some highlights from last year for our US retirement business.  We surpassed the milestone of servicing 100,000 annuitants and our largest transaction, in terms of number of lives, are just under 18,000.


These are really important achievements for us, because excellent customer service is really at the core of what we do.  Transacting with an insurer is the beginning of a multi-decade relationship between the insurer and the plan’s participants.  So being a knowledgeable and responsible insurer with a client-focused approach is something that we really pride ourselves on.  And we’re excited to have been able to prove that through our 81 NPS score and 4.96 out of 5 average call centre rating.


Paige W:               Great.  And John, over to you for a quick summary on the UK market.


John T:                  Yeah.  So for me, the story in the UK is, I’d say the second half of the year was really the busiest I can remember.  There were £20 billion of buy-ins or buyouts that were completed in the second half of the year.  And that, you know, is close to sort of a record half it.  It was driven by improved funding levels within pension schemes, so they’ve improved their funding level position.  And by very consistent appetite from the aid insurers that write buy-in and buyout business in the UK.


For the year, that should bring volumes to right around 30 billion, maybe a touch less.  When I kind of think back to last year, a lot of the projects and transactions, they were very competitive and fiercely fought for.  And I think that kind of very more broadly speaks really to the health and vibrancy of our market.  And to put, last year, those numbers in context, if you kind of think about the UK, we were a market that was doing low single-digit billions, annually, 10 years ago, to where we are today.  Where we’ve got a pretty good baseline of 25 to 30 billion pounds of annual business and definitely scope to do more.


And that we’ve been able to operate at that high level and secure that volume of pensions is, against the backdrop of the pandemic, really has been a great result for the members of the pension schemes, for the trustees who run those schemes and the companies that sponsor them.  I think, Sheena, you had mentioned a couple of highlights.  I’m thinking about, would my highlights be from last year.  I mean, there would obviously be a long list of transactions I could mention, but for me, I think I’m really most proud of a couple of the more behind the scenes aspects of our business.


Over the year, we spent a lot of time improving and developing the operational capabilities of our reinsurance platform.  And that’s really going to set us up well to scale, to meet the growing demand that we expect from pension schemes in the future and be able to work with greater numbers of them.  And similar, Sheena, to what you had mentioned, we received a glowing report in our CCA accreditation, which measures customer service and how we look after clients.  And I think when you talk about our market and all of the transactions and the volumes, it’s sometimes easy to lose sight of the human element of our business.  But at the end of the day, our business is, it’s all about us looking after and delivering our clients’ pensions.


Paige W:               It’s great to hear that the insurers still have the capacity to keep meeting the growing demand for these types of solutions. But as you just mentioned, John, also being able to keep up with the high level of customer service that we pride ourselves on for many years, and keeping to that that standard.  For the purpose of our listeners who are located in the UK and US, you may hear John and Sheena talk or mention slightly different terminology between the two markets.  So I thought I’d just call out one of those in particular that’s not so obvious.  And that is the use of buyout and planned termination.  


So a buyout represents the winding up of a pension scheme.  This is where the responsibility of paying all the liabilities is fully passed over to the insurer. In the US, this is called a ‘planned termination’.  So I just wanted to make that clear, just in case you hear those two words used [interjectedly? 00:08:03].   So back to our questions.  In the US, you mentioned, Sheena, that jumbo deals were very much a clear – well, quite a big trend.  Were there any other notable trends that you saw in the market for 2021?


Sheena McE:         Yes, definitely.  We saw slowdown in planned terminations, and that was after a couple of years of increased activity. So our understanding is, this was caused by many sponsors holding off triggering the planned termination initiation at the onset of COVID in 2020.  So the result of that meant that, in 2019 and ’20, about 40% of total premiums in the market were planned terminations.   But last year, only about 25% of total premiums in the market were planned terminations.  But we really don’t expect this to continue, and in fact, we expect a significant uptick in planned terminations coming to the market this year, likely surpassing what we saw in 2019 and ‘20.


It’s really interesting to note that we’re already seeing a trend emerge as a result of the increase in planned termination activity, especially with larger plans that we saw terminating in the last couple of years.  Which is a new solution that has come to the market in the form of buy-ins for planned terminations.  The planned termination process in the US takes 18 to 24 months and sponsors are looking to try and lock-in pricing risk earlier in that process.  So buy-in – which can be purchased in the early stages of a planned termination and then converted to a buyout upon final closure of the plan – is helping to lock-in that risk.  We saw at least 5 transactions like this in the market last year, totalling around 4 billion in premiums.


Paige W:               Interesting to hear, because that’s quite a big trend in the UK where a lot of schemes will do a series of buy-ins and then convert to buyout when affordability becomes available.  So moving on to trends in the UK market – John, I’ll pass over to you to summarise some of those.


John T:                  I mean, in many respects last year, it sort of feels like a continuation of the years before.  A couple of trends that I think we’ve observed is, there’s been a very good balance of transactions of all shapes and sizes.  I think, sometimes in previous years, you’d hear talk of larger schemes crowding smaller schemes out of the market, and this definitely hasn’t been the case. We’ve spent a lot of time working on our quote processes and platform to be able to provide more quotes, particularly for smaller schemes.  And we, for example, have doubled the number of transactions that we complete each year versus a few years ago.


We like that variety of big schemes, small schemes.  It comes from – Sheena, you’d mentioned our asset management subsidiary – LGIM – but LGIM have relationships with pension schemes of all shapes and sizes.  And when they’re ready to secure their members’ pensions with an insurance company, we want to be able to work with them.  And another trend that I would mention in the UK is innovation and there’s been a lot of work on some of the consolidators looking to get off the ground.  And our assured payment policy solution, we completed our largest ever transaction last year and converted one that we had done previously to a full buy-in.  So there has been a good focus on alternative solutions and different approaches.


Paige W:               And are you expecting any of these trends to continue into 2022?


John T:                  Yes, I think we’re expecting the busy market that we saw in the second half of the year.  It definitely feels the year has begun quickly.  The other thing – and you know, particularly with the recent market volatility – is that I’d point out that pension scheme funding has improved quite significantly over the past year.  And sometimes a little bit faster than the schemes had anticipated or their journey plans had contemplated.  That’s been primarily driven by the rise in interest rates over the past year.  And we’re having conversations with schemes around, “OK, so we’ve gotten to this point to where we can afford a buy-in or a buyout, but we haven’t quite dealt with our illiquid assets yet, or liquid investments or our data isn’t quite right in the shape.


So we’re having a lot of discussions along those lines, like deferred premium for an illiquid assets yet or illiquid investments, or our data isn’t quite right in the shape.  So we’re having a lot of discussions along those lines, like a deferred premium for an illiquid asset that needs to roll off.


Another trend, it really feels like ESG has – it is a key driver in the decision-making process and all of us are sort of on a journey to building our ESG policies and how we bring that to life.  And I think that’s just going to continue to grow this year.  And I think I’d mentioned innovation and, dare I say it, it’s certainly a long time coming, but I think 2022, we will see the first consolidator transaction.


Paige W:               Thanks, John.  And Sheena, just going back to the increase in number of buy-ins that you saw in the market last year, do you expect this trend to continue into 2022 or do you think it’s kind of a one-off within 2021?


Sheena McE:         No, I definitely expect it to continue.  We’ve already seen four buy-ins come to the market, set to close in the first quarter of this year.   Three of those are over 750 million in size, and that almost matches last year’s total already.  So from what we’re hearing, conversations about buy-ins with planned sponsors are becoming increasingly common and we do expect this new solution to pick up steam.  


But I think it’s important to note that maybe one of the key differences between the use of buy-ins in the UK and the use of buy-ins out here in the US is that, while we expect them to start to play an important role in the short-term, one to two-year timeframe of a planned termination as a risk mitigation tool, it’s expected that the key long-term de-risking solution for pension plans in the US will remain buyouts.


Paige W:               Thanks Sheena.  That’s interesting to note.  And we’re still very much in the early part of the year, but do you expect any new trends in 2022 to emerge at all?  If I start with you Sheena, in the US.


Sheena McE:         Well, one thing, for sure is, we’re off to a very fast start this year.  We estimate about 7 billion in premiums in Q1, and no Q1 has ever topped 5 billion before.  So if that does come to fore, then absolutely, it’s going to be a record-breaking quarter.  We also expect to continue to see large transactions come to the market.  We’ve got 7 already set to close in the first half of the year, several of which are jumbo deals.  It’s really too early to have a good feel for how 2022 will play out for smaller transactions, but I wouldn’t be surprised to see a comeback for smaller deals as well.


Paige W:               And John, any trends or new trends in the UK?


John T:                  I mean, like the US, I think we’re off to a fast start and I think we’re really as busy as we’ve ever been quoting.  We do think that there is the potential for some larger sort of mega transactions to come to market this year, given the improvement in in-scheme funding levels.  What I make is, there’s plenty of capacity within the market.  And we do expect larger annual volumes, going forward beyond 2022.  Many industry commentators are predicting that annual volumes could edge up towards 50 billion per annum over the next 5 years.


And I think, if you’re in a market where demand is growing, I think we’re going to see more pension schemes put together plans around how they engage the market and maybe establish a relationship with an insurer or establish a panel of insurers through umbrellas and some smaller buy-ins that will ultimately lead to buyouts.  So I think we’re going to start to see some thinking in that way.  And the other thing I would say is that – I think, Sheena, you said it at the beginning – but as the PRT markets grow, the companies that run defined benefit pension schemes or plans, they don’t think about them in isolation.  It’s, they think about them globally.  And we are seeing more and more companies running de-risking transactions across countries and time zones, simultaneously.


Paige W:               I suppose, as the schemes become more affordable, it makes sense that they can de-risk liabilities across different countries, which is good to see.  So hopefully we’ll see more global transactions that L&G participate in, going forward.  It certainly looks like both markets are set for another busy year.  With that in mind, could you each just share a couple of tips on how to approach the market to ensure they get the insurer engagement that they require, if they are looking to come later on this year.


John T:                  I’ll go first.  For me, I’d say, I think some principles in our market, regardless of the market environment to the wider context, they are timeless.  And for me, preparation and the importance of preparation is the number one tip I’d give.  Buy-ins and buyouts, they don’t happen by accident.  They’re always the culmination of a carefully-prepared and very well-executed plan.  And I don’t think we’ve ever seen a pension scheme tell us, after they bought out, that they accidentally bought out.  What we often hear, unfortunately, is that we’ll see the reverse, that they were funded fully on a buyout basis, but missed the opportunity to transact.


And schemes that are well-prepared with very clear objectives, efficient governance, will be really best-equipped to take advantage of opportunities and get the most from insurers when they do engage them.  And I mean, I’m trying to remember, but I think my colleague – [Matt Nelms? 00:19:28] did a webcast last year on preparation and how to come to market, and it should be on our website.  So I would point our listeners in that direction.


Paige W:               Thanks John, and Sheena in the US?


Sheena McE:         So it’s very similar to the UK.  Preparation is key in the US as well.  I wanted to add a couple of other points, and it’s linked also to the UK.  John’s mentioned throughout this podcast the words ‘innovation’, and also ‘partnering with insurers’ or a panel of insurers.  And the maturing market in the US and the increasing competition means that innovation is really starting to bloom here as well.  This is really exciting.  It means that there are options for locking down risk, and those options are expanding.  And we’d encourage sponsors to discuss how their needs could be met with customised solutions from insurers.  


However, this does come with a caution.  In Q4, demand can outnumber supply and that can inhibit these dynamics.  So if I’m going to leave you with one piece of advice, that is, try to avoid Q4 if you can.


Paige W:               Thanks Sheena.  Well, it sounds like your Q1 is very busy, so maybe the market’s already getting that message through.  And I suppose one of the key takeaways, what I’m hearing from both of you is, preparation and early engagement are key, or the main two takeaways from that discussion.  Well, thanks both for your time.  It’s been really interesting to hear about the trends from last year and what we expect for the market this year.  And it sounds like it’s definitely going to be a busy year for both sets of teams.  Thanks for joining, it’s been a pleasure.


Note:                     Legal & General Retirement America is a business unit of Legal & General America, Banner, Maryland, Legal and General America.  Life insurance and retirement products are underwritten and issued by Banner Life Insurance Company, Banner Maryland and William Penn Life Insurance Company of New York, Valley Stream, New York.


This document may contain certain forward-looking statements relating to Legal & General, its plans and its current goals and expectations relating to future financial condition, performance and results. By their nature, forward-looking statements involve uncertainty because they relate to future events and circumstances which are beyond Legal & General’s control, including, among others, UK domestic and global economic and business conditions, market related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory and Governmental authorities, the impact of competition, the timing impact of these events and other uncertainties of future acquisitions or combinations within relevant industries. As a result, Legal & General’s actual future condition, performance and results may differ materially from the plans, goals and expectations set out in these forward-looking statements and persons reading this document should not place reliance on forward-looking statements.

These forward-looking statements are made only as at the date on which such statements are made and Legal & General Group Plc. does not undertake to update forwardlooking statements contained in this document or any other forward-looking statement it may make.


[End of recorded material at 00:21:42]


Looking ahead to 2021


[Start of recorded material at 00:00:00]


Paige  W:              Hello and welcome back to Series 2 of L&G Retirement’s podcast ‘Institutional Insights’, where experts across our business talk all things PRT, from market trends, innovation, around de-risking solutions through to ESG, and how that shaping our investment decisions.  I’m Paige Wilson and today I’m joined by Dom Moret and Sheena McEwen, who are going to provide a global roundup of LGRI in 2020,  reflect on the market trends from the year and look forward to what we can expect in 2021.  So let’s start with some intros.  Dom, could you tell our audience just a little bit about your role and what that entails in the UK? 


Dom M:                 Sure Paige.  Hi. I’m Dom Moret, I lead the UK Pension Risk Transfer Transactions team, so my team lead and execute the transactions that we’ll be talking about today.  And I’m responsible for managing external client relationships and developing the pipeline of new business opportunities that support our growth ambitions.


Paige  W:              Thanks, Dom.  And Sheena, what does your role on the other side of the pond consist of?


Sheena McE:         Thanks, Paige.  Yes, I’m Sheena McEwen and I head up the equivalent team to Dom’s in our US PRT business, which, in the US, we call our ‘distribution team’.  We launched our US PRT business in 2015 and I’m very excited to be here today, reflecting upon our success at the five-year mark in 2020 and our aspirations for continued future success.


Paige  W:              Thanks, Sheena.  So 2020 was a very challenging year for all of us, forcing most people to adapt to new ways of working and living and the pandemic, in turn, disrupted the global economy on a whole.  But when we look at the volumes of business written in the PRT market, I believe it was the second strongest year we’ve seen so far.  Can you talk us through why 2020 was a successful year for the PRT market and touch upon some of the highlights and achievements for both the UK and US.  So if we start with Dom on the UK side, if that’s OK.


Dom M:                 There’s probably three highlights for me, and I’ll go through them in turn.  So first off is resilience, and as you say, 2020 was very much characterised by the pandemic.  From an L&G perspective, we’d been working on an agile basis for a couple of years, so kind of splitting work between home and the office.  So that enabled us to quickly move to homeworking in March, and that was across both the new business team and the operations team.  That meant that there was no disruption to customer service or to new business.


So from a customer service perspective, Net Promoter Score – which is a measure of customer satisfaction – remained at world-class levels at the start and throughout the pandemic.  And from a new business perspective, we completed three transactions in the first week of lockdown alone, so testament to the way the team adapted.  And as you said, for the UK market, it was the second largest year on record from a volume perspective, so really characterising that that resilience.


My second highlight was around collaboration and proactivity.  And it’s well-known and widely-publicised that the pandemic led to fairly significant volatility from a market conditions perspective.  And that volatility presented pricing opportunities for well-prepared schemes.  There were some schemes that were already in the market that accelerated their processes to make the most of that pricing opportunity.  And there were some existing clients of ours who mobilised to take advantage of that good pricing.


A really good example of that is our transaction with the ICI pension fund.  We completed a £70m transaction with them in May, within eight weeks of us first raising the market conditions opportunity with them.  And that marked the ninth transaction with them under our long-standing umbrella relationship. 


Then my final highlights of the year was the opportunities that existed for small schemes.  2019 was very much a year of jumbo transactions for the UK market and the lack of similar ‘mega deals’ in 2020 left space in the market for smaller schemes. It’s worth remembering that around three quarters of DB schemes have assets of less than £100m, so it’s a really important sector of the DB landscape.  We’ve spent time in recent years developing streamlined pricing and governance approach for smaller schemes, and over 2020 we completed 29 transactions for schemes under £100m compared to 23 in 2019, and we’re really pleased of that 25% increase.


Drawing that all together, I guess 2020 really showed the strength of the insurance regulatory regime and the fundamental purpose of insurance.  During some of the most uncertain times in living memory, former DB pension scheme members, with their pensions now insured, have had one less thing to worry about.


Paige  W:              Thanks Dom.  I’m just going to throw it over to Sheena to talk through some of the highlights on the US side.


Sheena McE:         I would echo the three themes that Dom has mentioned.  Our resiliency in the wake of pandemic is something that we’re really extremely proud of, and 2020 ended up being our best year in terms of business placed, with over $1.6bn in premiums.  That’s a 40% increase from 2019, despite what we expect to be a reduction in the overall transactions sold in the market.  And to put this growth further into perspective, we sold more business in 2020 than we did in our first three years between 2015 and 2017 combined.


Extending the collaboration theme that Dom mentioned, Legal & General is the only PRT provider who can place business in both the UK and the US, and 2020 marked our first two global transactions.  In the first half, we worked with IHS Markit to place transactions simultaneously in the US and the UK.  And we’ve just released an announcement that in the second half, we worked as Evonik Industries, completing a $93m lift-out for the US Evonik Corporation Retirement Plan, followed by a £544m full buy-in of Evonik’s UK pension schemes.  Our collaboration with Dom’s team was really pivotal to the success of these transactions.


And then lastly, making the most of new opportunities.  As Dom said, in the UK, this was small schemes but for us this theme is more around larger deals.  Because in 2020, we placed our largest transaction to-date – independent of reinsurance  – which totalled $355m.  This is a really big highlight for us, and as I’ll talk about later, is something we want to be able to build on.


Paige  W:              Thanks Sheena.  It’s great to hear the successes on both sides of the business and what they were able to achieve.  A pandemic like this brings a lot of uncertainty and the fact that we, as an industry, can bring certainty to thousands of members and their pensions is something to be proud of, for sure.  And I hope we can see more global transactions in 2021. So just sticking to the theme of last year, reflecting on our transactions completed and the total premium written in 2020, was this expected or is there anything that surprised you at the end of the year?  So if we start with the UK.


Dom M:                 So Paige, I think to answer that question, we probably need to start by going back a year earlier and looking at 2019.  So as we’ve said previously, that was a record year for the UK market.  There was over £40bn worth of UK pension risk transfer, which compared to £25bn in 2018.  And that was characterised by several ‘mega transactions’ – as we would refer to them.  So there were six transactions over £2.5bn in 2019 and there are only two others over £2.5bn in the history of the market.  So it shows you just what a big year 2019 was.


So moving into 2020, we had a very active pipeline, but it was always likely to be a lower total volume than 2019 due to the lack of very large schemes.  Clearly no one saw the pandemic coming and the end of the year, we can reflect and be very pleased, but not necessarily surprised that both Legal & General and, indeed, the wider market, showed resilience.  Market volatility throughout the year resulted in a slightly lopsided year  for us in terms of transactions.  During the first half of the year, amidst widening credit spreads, as I mentioned earlier, there were short-term opportunities for pension schemes.


We completed a very large number of smaller transactions, so we completed 18 of our 29 transactions under £100m during that first half of the year.  In the second half of the year, as the volatility reduced and organisations adapted to the new normal, we saw more mid-sized  transactions complete.  So there were fewer transactions for us during the second half of the year, but a larger average transaction size.  


So overall, we expect the market to have completed just over £30bn worth of pension risk transfer in 2020, and that’s the second largest year on record.  And that’s a great result for pension schemes, the companies that support the pension schemes and members, given the unprecedented year.


Paige  W:              So a great result in the UK,especially with the uncertainty from the pandemic and lack of mega deals that we saw in 20 19.  Sheena, was there anything that surprised you in the US?


Sheena McE:         Thanks, Paige.As Dom said, let’s look at 2019 in the US to get some context.  2019 was a huge year for the US market with a $30bn in transactions placed, which isn’t quite the largest year on record, as 2012 still holds that trophy due to the GM and Verizon deals which together made up $34bn.  But it was the largest year since 2012.  The pandemic really raised significant uncertainty around how 2020 would play out, and the first half was much slower than 2019 with a $6.7bn premium compared to $10.4bn that we saw in 2019.


The majority of transactions in the first half of 2020 were plan terminations,   and our ability to insure deferred lives allow us not only to be resilient, but  we actually had an extremely successful half under these conditions, selling more business than we had in the first half of 2019.  The experience of that first half and the market volatility left a really tremendous amount of uncertainty over what we could expect in the second half of 2020, which is traditionally a much bigger market in the US in the first half of the year.


In our August PRT Monitor, our estimate for expected total premiums for the year was a pretty big range as a result, anything from $15bn to $25bn, but not topping the $30bn that we saw in 2019.  However, by October PRT Monitor update, we noted seeing a consistent deal flow from a surge in retiree lift-outs.  And as a result, we were expecting a very active Q4, predicting the market to end at the higher end of that range at around $25bn.


This came through and, based on our estimates, we expect that Q4 2020 to have closed at around $13bn to $14bn, which would make it the biggest quarter since the GM and Verizon deals in 2012, surpassing 2019.  Our business strategy meant that we were well equipped to handle such a tale of two halves.  As I mentioned, our ability to ensure deferred lives allowed us to be resilient in the first half, and in addition, our ability to manage capital globally allowed us to capitalise on the great opportunities for larger deals during the second half.  We don’t yet know officially what 2020 ended up at, but we expect it to be around $25bn to $26bn.


Paige  W:              Dom, you mentioned earlier that 2020 we saw fewer jumbo deals and more deals transacted for smaller and medium-size d schemes.  What can we expect going into 2021?  Do you think we will complete the same amount or do you think mega deals will come back to the market again?


Dom M:                 The pipeline is very similar to this time last year.  We’re already working on a number of transactions in their early stages.  In fact, we’ve recently announced our first transaction of the year, which is a £30m bulk annuity with the Marie Curie pension scheme.  So we’re under no illusions that it’s likely to be a very busy year again.  In terms of other trends that we might see in the market this year, I think we probably expect to see more transactions for repeat clients.  And that’s indicative of more journey plans continuing to evolve and the scheme is becoming better funded.  And also, schemes returning for follow-up transactions as part of their wider de-risking plans.


I think we also expect to see more umbrella contracts being put in place, and these umbrella contracts are kind of overarching contracts which allow for follow-up transactions to be written on similar terms as the original transaction. I expect to see more schemes partnering with an insurer to make the most of that market volatility, rather than having an auction across a number of insurers at a specific point in time.


I expect to see the continued emergence of alternative solutions.


We recently announced our second assured payment policy – or APP – transaction.  These alternative solutions provide access to de-risking solutions for schemes who perhaps aspire to the gold standard of buy-in or buy-out, but aren’t quite there yet, and we continue to expect schemes to seek to innovate along their de-risking journey.


And then finally, I think probably more global transactions as well.  As Sheena said, we’re uniquely positioned to be able to offer on this solution, so we look forward to partnering with more global organisations and their pension schemes over the coming years.


Paige  W:              It sounds like there’ll be more strategic opportunities for sponsors and schemes alike to take advantage of favourable conditions when they arise, given the market volatility that may occur as we continue into lockdown,  and we’re not quite sure what’s going to happen after that.  So now, focusing on the American side – Sheena, you mentioned that, in 2020, that was the best year LGRA has had since setting up the business, surpassing $1.6bn in premiums.  Can you expect a similar level this year and are there any other trends that are starting to emerge that you can comment on?


Sheena McE:         Thanks, Paige.  We certainly intend to be a major player as we steadily grow our position in the US market.  What’s great is that we’re winning more deals with repeat clients, thanks to our excellent service.  And we’re absolutely going to continue to come together with the UK on global opportunities, as Dom just mentioned.


With regards to 2021 specifically, it’s really too early to know what we’ll see in the PRT market, especially given the ongoing pandemic.  What we do know, talking about trends, I talked about plan terminations being a significant part of the first half of last year.  Well, there were less companies that initiated plan terminations in 2020 because of the pandemic, and in the US a plan termination timeline is typically around one to two years.  So we may see a drop in plan terminations for several months in 2021.  However, we’ve been told that the activity for these types of transactions did significantly pick up again towards the end of last year.  And as a result, we can probably expect that lull to be short-lived and pick up again towards the end of this year, or maybe the beginning of next year.


Moving to retiree lift-outs – which I mentioned was the vast proportion of the second half of last year – they have shorter timeframes but they’re also more sensitive to current market conditions than plan terminations.  That’s a topic we discussed in our October PRT Monitor.  As we saw in the first half of last year, companies can pause, delay or cancel altogether these kinds of transactions if they’re not comfortable with market conditions.  However, if the markets do manage to stay relatively stable, we could see a continuation of retire lift-outs from the pickup that we saw in Q4.


I think I’ll close out this question, Paige, by just noting that we aspire to the market position of our UK colleagues, who are perennially number one or two in the market.  And we’re building a strong foundation in the US to eventually reach that goal.


Paige  W:              Thanks, Sheena.  A lot of moving parts to be certain what the year ahead has in store, but I do hope it’s as busy as last year as companies adjust to the new way of operating and working and look to revisit old plans that were maybe put on-hold last year.  


So before we end our chat today, can you take us through our 2021 objectives and what each business strives to achieve?  So Sheena, if we start with LGRA’s objectives first.


Sheena McE:         Absolutely.  The market opportunity in the US is significant.  There’s $3.5 trillion of defined benefit liabilities, and we estimate that only around 6% of that is transacted to date.   We pride ourselves on our ability to provide excellent service and to be a partner to sponsors of pension plans, both in the UK and the US, and aim to build on our large deal success from 2020.  We’re leveraging an enhanced solution that we have built, which provides additional security, backed by our flagship UK insurer – LGAS.


With this solution, we aim to write a larger deal this year than we did last year.  So while the market for 2021 remains uncertain at this stage, our objectives to continue to grow remain very strong.


Paige  W:              And over to you, Dom, on the objectives for the UK side.


Dom M:                 Yes.  In the UK, the market opportunity is, in fact, very similar to the US.  There are £2 trillion of defined benefit liabilities, and less than 10% of that is insured.  Rather than focus specifically on volumes and targets and aspirations for 2021, we’ve taken a slightly longer-term view here and have an ambition to write £40bn to £50bn of new business, pension risk transfer, over the next five years.  


In terms of specific objectives for 2021, I would say continued success with our streamlined solution for smaller schemes, building on the 29 transactions that we completed last year.  Continuing to provide bespoke solutions to larger schemes, or for those schemes where a buy-in or a buy-out may not be the right solution for them at this precise moment in time.  Using those solutions to help existing clients continue their de-risking journeys and, of course, as we’ve discussed at length today, more global transactions.


Paige  W:              Thanks both.  So  let’s hope for a busy year across the UK and US for 2021.  Unfortunately, that’s all we have time for today.  It’s been a joy to talk to you both, and I look forward t o hearing more about our global proposition.  Thank you for listening to our first episode of the series.  You can subscribe to the podcast on Spotify and Apple podcasts, so you never miss an episode.  Thank you and goodbye.


[End of recorded material at 00:21:21]


This document may contain certain forward-looking statements relating to Legal & General, its plans and its current goals and expectations relating to future financial condition, performance and results. By their nature, forward-looking statements involve uncertainty because they relate to future events and circumstances which are beyond Legal & General’s control, including, among others, UK domestic and global economic and business conditions, market related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory and Governmental authorities, the impact of competition, the timing impact of these events and other uncertainties of future acquisitions or combinations within relevant industries. As a result, Legal & General’s actual future condition, performance and results may differ materially from the plans, goals and expectations set out in these forward-looking statements and persons reading this document should not place reliance on forward-looking statements.

These forward-looking statements are made only as at the date on which such statements are made and Legal & General Group Plc. does not undertake to update forwardlooking statements contained in this document or any other forward-looking statement it may make.

L&G's global PRT business - Reflecting on the year so far


[Start of recorded material at  00:00:00]



Paige: Hello and welcome to Legal & General’s podcast, ‘Institutional Insights’ on ‘L&G’s global PRT business - reflecting on the year so far.’ I’m your host, Paige Wilson, New Business Manager and today I’m joined with Chris DeMarco, Managing Director of UK PRT and George Palms, President, Legal & General Retirement America, who will be reflecting on the year so far for the pension risk transfer market for the UK and US, including the impacts of COVID-19, current trends and what we can expect later in the year.


Paige: Hi Chris, Hi George, thanks for taking the time to talk to us today.


Chris: Thanks for inviting us Paige.


George: Great to be with you Paige.


Paige: As we know COVID-19 has impacted many businesses across the world, how has this impacted the pension risk transfer industry, and how do you think these impacts will be long term?


Chris: Well Paige, COVID-19 has provided some favourable pricing opportunities, so even with the market volatility, there has still been substantial appetite for buy-ins and buyouts and we completed twenty-nine transactions in the first half of the year and we signed eight in March alone. At L&G, our teams are used to ‘agile working’ and have been doing so for more than two years now. We can price, negotiate, and sign PRT deals remotely, which put us in a strong position during lockdown. During the first full week of lockdown, we actually signed three transactions all in the same day and all remotely.


Paige: And George, how was it for you and the team in the US?


George: In the US Paige, we’re in a similar position to what Chris described, we’ve been able to work remotely successfully throughout these challenging times and we’re able to do so because when we started business about five years ago in the US, we had everyone work from home on Fridays. It was a relatively seamless transition for us to then move to fully remote. In addition, as Chris said we’ve been able to price deals and transition deals fully remote, we have executed four transactions through the first half of the year and they’ve all gone very well. Additionally, our call centre has maintained its high level of customer service satisfaction that we measure quantitatively while all working remotely. We feel this transition has been a really seamless one for our intermediary partners as well as our clients.


Paige: It’s great to hear that despite of COVID, demand for pension risk transfer remains high in both the UK and US and transactions can be completed remotely. This year also brought talks of the first Pension Consolidators. Do you think this will impact insurers and the PRT market in the UK Chris?


Chris: So Paige, it was a very welcome piece of guidance from the Pensions Regulator’s guidance Defined Benefit (DB) superfunds released in June and although we expect buying out benefits with a UK insurer to remain the preferred direct path for most trustees, we also recognise that there’s demand from Schemes that can’t afford buyout or buy-in and we’ve developed our own solutions as well, such as Assured Payment Policies or APPs and Insured Self-Sufficiency, which can improve access to de-risking opportunities for pension schemes. Now the guidance issued by the Regulator does remain interim, which means that it sets out standards to be met at “before longer-term legislation is in place”. We also would expect the Regulator to refine this guidance as they digest feedback from the market, a process that we’ll be actively engaging on.


Paige: Thanks Chris, it’s great to see there’s a lot of innovation taking place and the market continues to evolve to meet the demand and provide solutions to those Schemes that are not yet in a position to consider buy-ins or buyouts. And for those listening, you can find out more about our APP and ISS solutions on our website. So following on from L&G’s half year results at the start of August, Legal & General Retirement Institutional has reached £3.4bn premium for global PRT over 29 transactions. What new trends have you noticed, and are these likely to continue in H2?


So if we can start with Chris in the UK please.


Chris: Sure Paige, 2019 was very much the year of the ‘jumbo transaction’, but this year we’ve concluded far more mid-smaller sized pension scheme transactions, perhaps previously, these were the sort of Schemes that might have struggled to get engagement from insurers. But just under 75% of UK DB pension schemes have assets of £100 million or less, and sometimes the trustees of these pension schemes can find it challenging to get insurer engagement when markets are busy with larger transactions. We continue to service the whole market and we’re leveraging IT and pricing resources for smaller schemes. Over 40% of our transactions were less than £25m and our smallest transaction in 2020 so far included a £2 million deferred-only buyout transaction. About 2/3s of our transactions overall were less than £100 million and that’s about twice as many as we had in 2019 and we’d expect demand from smaller pension schemes to continue throughout the rest of the year into 2020 and beyond.


Paige: Thanks Chris, sounds like there’re many opportunities for smaller schemes in 2020 and going forward like you said to 2021. George, in the US you’ve been following the trend of increasing plan terminations. Can you briefly explain what terminations are compared to lift-outs and why the US market is seeing more of this type of transaction?


George: Thank you Paige, In the US a plan termination is the final step for the plan’s sponsor in the de-risking journey. Essentially it means that the plan’s sponsor is transferring all the administration and financial responsibility for any remaining liabilities to the insurer, thus closing the plan itself and relieving the plan sponsor of any future financial liability. Lift-outs typically precede plan termination transactions and in lift-outs a plan sponsor’s transferring just a portion of the plan to an insurer. Historically lift-outs have been the most popular type of transaction by far in the US, but as you indicated Paige, we have seen a significant increase in plan terms recently. Over 70% of transactions, by premium, with finals in the first half of the year were plan terminations, compared to only 38% over the same period in 2019. This increasing proportion of plan terminations could, in part, be due to the market fluctuations we’ve seen this year, but probably is even more so driven by US tax reform that occurred in late 2017 early 2018, where plan sponsors accelerated contributions to their plans and improved their funding status, putting them in a position to in fact terminate the plans in 2020. Plan terminations can take anywhere from 12-18 months, so they really require this kind of forth thought in planning to prepare for a termination so that they can be at a point where they file the appropriate regulatory documents with the IRS in the US with the department of labour and that prep is an intensive process and really requires them to make sure they’ve got a well-defined plan to take the final step of affecting the plan termination transaction in the market.   


Paige: Thanks George, so for our listeners in the UK, a lift-out is very much similar to a buy-in, where as a plan termination is similar to what we would call a buy-out. Earlier this year we announced an exciting first, our first global PRT transaction with IHS Markit insuring its UK and US pension schemes – Please can you give us an overview of the process and will we be looking to complete more global transactions in the future?


George: This was really an exciting first global transaction for Legal & General and the PRT market in general. Legal & General is really the only player globally that can do these joint US and UK transactions and the US plan, the IHS Retirement Income Plan was about $97m, covering approx. 1,200 members and they were at that final step of completing a plan termination, and to do it we had to collaborate intensively both across the US and the UK and with the client and the intermediary. It took an unprecedented level of communication and collaboration to make this effective for the client and I’m really proud of how the US and the UK teams came together in their normal day-to-day activities to ensure that we really created an extraordinarily positive experience for the client and for the intermediary so we could close these transactions simultaneously.


Chris: The UK plan transaction was relatively straightforward transaction. It was for IHS (Global) Ltd. Pension and Life Assurance Scheme. It was for about £37.8m in size and covered approximately 150 members. In those respects, other than its connection to the US plans, it was a relatively straightforward transaction and as George said, we are institutionally uniquely placed to offer these services in both the US and the UK and this was an exciting first for us to secure liabilities in both locations at the same time through one single process and we’re confident we can offer global Pension Schemes this joined up approach and I think the IHS Markit transaction demonstrates how well the US and UK teams worked together.


Paige: Fantastic, watch this space for more global transactions! Before we end today, following our half year results and with challenges 2020 has brought so far, can you tell us whether our objectives have changed since the start of the year?


So if we start with Chris in the UK.


Chris: So Paige, despite COVID-19, 2020 looks set to be a strong year, with volumes for buy-ins and buyouts expected to be somewhere between £20 - £25 billion, which would be the second largest annual total on record. Our intentions institutionally remain unchanged, which is to write £40bn to £50bn of new UK PRT business over the next five years.


Paige: And George, if you can cover the US.


George: Certainly Paige. In the US we expect the Pension Risk Transfer market this year to be somewhere between $15 and $25 billion, which is a bit of a fairly wide range and that is a function of path and potential current  financial market volatility. It’s going to be down from last year’s total of $30 billion, as you may know, in the fourth quarter in the US that is historically always the busiest time in terms of the volume of deals that get done and so the future is very much ahead of us in the next few months in terms of determining what the level of volume is going to look like. I will add that in talking with one of the leading intermediaries in the US, his description based on the pipeline he looks at which of course is a bit ahead of us since he’s working directly with clients. He told me to expect the fourth quarter to be insane this year in terms of the level of activity, so we’re very excited about that, we see a lot of opportunity, we’re seeing a good RFP flow coming through we look at our year to date RFPs received in terms of dollar amount we’re looking somewhere close to $8.5-$9 billion so very much feeling on track for the industry to hit that $15-$25 billion level and my personal bet was to be towards the higher end of that range - So very excited about the opportunities for the end of the year.


Paige:   Thanks both,  It’s great to see both markets in the US and the UK still remain very busy given the pandemic that hit us earlier in the year. We’ve covered some interesting topics today and have given us a great overview of the year so far and what to expect going into the second half of the year. So, thank you both for your time.


Chris: Thanks Paige!


George: Glad we spoke with you Paige.


Paige: For more information about Legal & General Retirement Institutional’s half year results, please visit our Group website. Don’t forget you can subscribe to our podcast, ‘Institutional Insights’ via I-Tunes and Spotify, so you never miss an episode. Thanks for listening and goodbye.

[End of recorded material at 14:24:00]


This document may contain certain forward-looking statements relating to Legal & General, its plans and its current goals and expectations relating to future financial condition, performance and results. By their nature, forward-looking statements involve uncertainty because they relate to future events and circumstances which are beyond Legal & General’s control, including, among others, UK domestic and global economic and business conditions, market related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory and Governmental authorities, the impact of competition, the timing impact of these events and other uncertainties of future acquisitions or combinations within relevant industries. As a result, Legal & General’s actual future condition, performance and results may differ materially from the plans, goals and expectations set out in these forward-looking statements and persons reading this document should not place reliance on forward-looking statements.

These forward-looking statements are made only as at the date on which such statements are made and Legal & General Group Plc. does not undertake to update forwardlooking statements contained in this document or any other forward-looking statement it may make.