REG - Legal & General Grp - L&G agrees full buy-in for Boots Pension Scheme

Legal & GeneralAnnouncement

24/11/2023 07:00

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RNS Number : 5850U  Legal & General Group Plc  24 November 2023

 Legal & General Group Plc

 24 November 2023

Legal & General agrees £4.8 billion full buy-in for the Boots Pension Scheme

 

·    Secures the benefits of all 53,000 retirees and deferred members of
the Scheme, making it the UK's largest single transaction of its kind by
premium size and, for L&G, the largest single transaction by number of
members.

·    Builds on a long-standing relationship with Boots. Legal &
General has provided investment management services to the Scheme for over 20
years.

·    Legal & General has written £13.4 billion of global Pension Risk
Transfer (PRT) business year to date.

 

UK's largest single buy-in by premium size

Legal & General Group plc ("Legal & General") today announces that it
has agreed a £4.8 billion full buy-in with the Boots Pension Scheme ("the
Scheme"). This buy-in secures the benefits of all 53,000 retirees and deferred
members of the Scheme, making it the UK's largest single transaction of its
kind by premium size and, for L&G, the largest single transaction by
number of members.

The sponsoring company, Boots ("the Sponsor"), founded 174 years ago, is the
UK's leading health and beauty business with over 2,000 stores and 52,000
employees.

Legal & General has a long-standing relationship with Boots, having
provided investment management services to the Scheme for over 20 years. This
buy-in begins the conclusion of a de-risking process that the scheme first
embarked on in 2001.

This transaction represents another innovative step forward in DB pension
de-risking by providing a combined investment and insurance solution for the
Scheme's asset holdings, allowing the Scheme to achieve the certainty of a
transaction whilst also maximising value by transferring its assets (or the
associated sale proceeds) to Legal & General.

Legal & General worked in close partnership with the Sponsor and Trustee
to manage this transaction which incorporated both asset transition and
deferred premiums features.

This bulk annuity is Legal & General's largest ever single PRT
transaction.

Cardano was the strategic advisor to Walgreens Boots Alliance and lead broker
for the transaction, while Baker McKenzie provided legal advice. Aon was
strategic adviser, lead investment adviser and broker for the transaction
representing the Trustee, while Sackers provided legal advice. Slaughter and
May and Simmons & Simmons provided legal advice to Legal & General.

 

We have now written £13.4bn of global PRT year to date

Activity in the UK PRT market remains strong, with rising pension funding
ratios driving unprecedented demand. At the half year, Legal & General's
global PRT premiums totalled £5.0 billion. Since then, the Group has
completed a further £7.2 billion of new business in the UK, and a further
$1.5 billion in the US. In aggregate, Legal & General has transacted circa
£13.4 billion of global PRT this year (£10.2 billion of net premiums 1 
(#_ftn1) ).

 

Since the beginning of 2018 we have written a total of £59.6 billion of PRT:

 L&G PRT volumes (£ billion)       2018  2019  2020  2021  2022  YTD
 UK                                8.4   10.3  7.6   6.2   7.2   12.1
 International                     0.8   1.1   1.3   1.0   2.3   1.3
 Total                             9.2   11.4  8.9   7.2   9.5   13.4

 

Accelerating demand is enabling Legal & General to acquire these
liabilities earlier than it might have a year ago, thereby increasing the
average lifespan of the PRT portfolio. 2  (#_ftn2)

In addition to the £10.2 billion of global net PRT premiums written year to
date, we have also written £1.2 billion of individual annuities, taking total
annuity net premiums written year to date to £11.4 billion. 3  (#_ftn3)

Indicatively, this creates new business CSM of c£910m, adding to the Group's
total CSM balance. This was £12.4bn at HY23 and had grown at 7% over the
year. The additional CSM created so far in H2 demonstrates our ability to
continue to grow the CSM balance.

We operate a capital light business. We have deployed £270 million of capital
to write £12.1 billion of UK PRT. 4  (#_ftn4) As indicated at HY23, we expect
to achieve self-sustainability on the UK annuity portfolio again in 2023.

 

A strong solvency position providing significant firepower, and a progressive
dividend

As at 17 November, and net of this transaction, Legal & General's solvency
ratio was estimated to be 224%. 5  (#_ftn5)

This strong solvency position provides the Group with significant firepower to
continue to invest in attractive growth opportunities. The Board continues to
weigh investment carefully against the relative attractiveness of returning
additional capital to shareholders.

As highlighted at the HY23 results, we continue to expect Net Surplus
Generation (Operational Surplus Generation plus New Business Strain) to exceed
dividends in 2023. The Board has announced its intention to grow the dividend
at 5% per annum to FY24.

 

Andrew Kail, CEO, Legal & General Retirement Institutional

"We are very pleased to have agreed this buy-in today with the Boots Pension
Scheme, representing our largest ever single transaction. This is testament to
our long-standing relationship with the client, and I am proud that we have
been able to work seamlessly across our insurance, reinsurance and investment
management capabilities to deliver an excellent outcome.

We are continuing to see an unprecedented acceleration in demand in this
sector, driven by more pension schemes being closer to buyout than ever
before. Against this backdrop, we have posted a record year with £13.4bn of
global PRT written to date."

 

Alan Baker on behalf of Law Debenture, as Chair of Trustee, Boots Pension
Scheme

"This agreement with Legal & General gives added protection to our
members' long-term benefits by removing market uncertainty and other financial
exposures. We welcome the additional payment from Boots, in addition to the
sum it has already committed.  As a result, the Scheme will not be reliant on
Boots to pay benefits to members and pensions will be protected for decades to
come.

"I would like to take this opportunity to thank my fellow Trustee directors
and our predecessors, the Scheme officers and advisers for their hard work
over many years to reach this positive outcome for our members."

 

Sebastian James, Senior Vice President and Managing Director, Boots

"We are very pleased to have achieved the gold standard outcome for our
pension scheme and to have fully secured the benefits of all members with a
highly respected insurer.  This will provide greater certainty to both the
scheme members and to Boots, and is an excellent outcome for both parties."

 

Notes to editors

 

About Legal & General

Established in 1836, Legal & General is one of the UK's leading financial
services groups and a major global investor, with over £1.2 trillion in total
assets under management (as at HY23) of which c40% (circa £0.5 trillion) is
international. We have a unique and highly synergistic business model, which
continues to drive strong returns. Legal & General provides powerful asset
origination and management capabilities directly to clients, which also
underpin our leading retirement and protection solutions. We are a leading
international player in Pension Risk Transfer, in UK and US life insurance,
and in UK workplace pensions and retirement income. Our purpose is to improve
the lives of our customers and create value for our shareholders. Through
inclusive capitalism, we are investing in long-term assets, such as real
estate and infrastructure, that can help build a better society for the
future. As at 23 November 2023, Legal & General has a market
capitalisation of £13.6 billion.

About Legal & General Retirement Institutional

 

Legal & General Retirement Institutional (LGRI) works with trustees and
sponsoring companies of defined benefit (DB) pension schemes of all sizes to
settle their pension obligations and secure scheme members' benefits, through
a full range of buy-ins, buyouts and other de-risking solutions. Our Client
Services' 12-month rolling Net Promoter Score (NPS) is above 70, which is
widely regarded as being at a "world class" level. Including the premium to be
received in relation to this transaction, LGRI has annuity assets estimated at
£63bn.

 

About Boots UK

 

Boots is the UK's leading health and beauty retailer with over 52,000 team
members and 2,100 stores, ranging from local community pharmacies to large
destination health and beauty stores.

 

Boots serves its customers and patients' wellbeing for life. It is the leading
provider of healthcare on the high street and the UK's number one beauty
destination.

 

Boots has an unrivalled depth and breadth of product offering, which
incorporates its extensive own brand range and innovative portfolio of brands,
including No7, the UK's No1 skincare brand, Soap & Glory, Liz Earle Beauty
and Sleek MakeUP. For over 170 years, Boots has listened, learned and
innovated, and it continues to challenge itself to improve its products and
services every day.

 

Boots is part of Walgreens Boots Alliance, which is a global leader in
pharmacy-led, health and wellbeing retail. More company information is
available on boots-uk.com.

 

*Figures accurate as of 31 August 2023

 

 

 1  (#_ftnref1) This figure allows for anticipated Funded Reinsurance

 2  (#_ftnref2) Advisors suggest annual UK PRT volumes alone could exceed £50
billion for at least the next five years (Lane, Clark & Peacock)

 3  (#_ftnref3) Individual annuity volumes to 10 November (NB: we retain all
the risk on our individual annuity book)

 4  (#_ftnref4) This includes a reduction in capital usage from risk margin
reform on business written in 2023 year to date

 5  (#_ftnref5) This includes the estimated impact of risk margin reform

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