Incorporated Cell Companies (‘ICCs’)

WHY CHOOSE AN ICC?

ICCs are like PCCs and can be used for the same purposes and have the same advantages, however each Cell is a separate legal entity which allows Cells to contract with each other. Whether a PCC or ICC is used is down to client preference.

As with PCCs, ICCs are commonly used for Insurance Linked Securitisation (‘ILS’) and more recently to facilitate pension longevity swap transactions. Click here for more information on ILS.

USING ICCs FOR PENSION LONGEVITY SWAPS

Pension fund Trustees have an obligation to manage and mitigate the risks faced by the pension scheme. One of the risks that has been increasing in recent years is longevity as people are living longer due to factors such as medical advances and more health-conscious lifestyles.

Longevity swaps have been around since 2008 but tended to be transacted with insurers or banks who then mitigated their risk through the purchase of insurance/reinsurance which inevitably added cost and complexity.

The reinsurance market remains competitive but the reinsurers themselves are only able to deal with regulated insurance companies and not directly with pension schemes. This has led to the formation of Incorporated Cells to enter longevity swaps.

The major advantages for the pension fund Trustees are:

  • Ability to continue to manage investments even when they are collateralised;
  • Transparency of structure;
  • More control and Governance than a conventional swap or buy in/out;
  • Structure is scalable such that further swaps can take place in the future; and
  • Swap can be novated as part of a buy in/out strategy in the future.

There are two options for pension Trustees:

  • Set up an Incorporated Cell in a third-party ICC (such as Robus Insurance (Guernsey) ICC Limited); or
  • Set up an ICC and then form Incorporated Cells for longevity swap transactions, which allows the Pension Trustees to choose the Directors appointed.

The diagram below summarises how pension longevity swaps work.

icc-how-it-operates

Download our flyer on Longevity Risk Transfer.

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  • For further information on ICCs please contact David Riley

    David Riley manages Robus’ pension longevity swaps. He project managed a £3.4bn longevity swap which executed in 2017. The deal is thought to be the third largest longevity risk transfer for a UK pension scheme and the second largest using a captive structure. Around 7,500 members were covered under the transaction.

    David would be delighted to discuss your requirements and answer any questions you may have regarding ICCs, ILS and pension longevity swaps. His contact details are:

    David Riley, Risk Consultant, Robus Group Limited
    E-MAIL: David.Riley@robus-risk.com
    MOBILE: 00 (44) 1481 100944
    OFFICE: 00 (44) 1481 742559


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