Large scheme advisory and insurer diligence

The background

Our client is the trustee of a large multi-section pension scheme sponsored by the UK operations of a global pharmaceutical group. A guarantee is provided by the overseas listed parent company.

Our solution

We provide proportionate ongoing covenant advisory services to the trustees including quarterly monitoring which is integrated into the trustees’ IRM dashboards. We have also advised the trustees in relation to triennial valuations and in respect of corporate activity, most recently an acquisition to expand one of the group’s key divisions.

Shortly after completion of this acquisition, significant litigation emerged in association with the acquired company. We helped the trustees understand the impact of this fast-moving situation on their scheme’s covenant and adapted our monitoring and covenant advice in line with this.

As the scheme has become better funded, the trustee has been considering insurance transactions as part of its wider de-risking strategy. We have a market leading specialist service for clients to consider insurance counterparty risk, and we were commissioned by the trustees to support them with understanding the key financial strengths and risks of their insurer. Working to a compressed timeframe, we provided the trustees with a detailed report on both the particular insurer and the underlying insurance regime, subsequently presenting and discussing our advice at a trustee meeting.

The results

This insurer diligence work enabled the trustees to progress confidently with their buy-in transaction, understanding how the security to member benefits would change as a result of the policy. We are continuing with our monitoring of the sponsor and have also incorporated a proportionate monitoring process regarding the trustee’s chosen insurer.