Asset and Liability Management
At PIC, our business is to pay the pensions of our policyholders. During an insurance buy-in or buyout the Asset and Liability Management team buys investment grade bonds / loans to match the pension payments due to policyholders. A high quality investment grade credit portfolio provides a regular cashflow over the long term which we can match to our pension payments.
This means that we have a stable, secure cash flows to back the payments we make to our policyholders.
As shown in the chart below, our portfolio is predominantly invested in UK government bonds, investment grade bonds/loans and cash. Our investment process is focussed on making good quality long term investments, minimising defaults and generating the inflation-linked, long-term cash flows required to pay our policyholders’ pensions.
One of the key facets of our portfolio is the very long-term, illiquid, nature of the liabilities insured by PIC. This means we can also invest in long dated illiquid assets that offer attractive expected returns and low risk. A good example of this is infrastructure debt.
In summary, we have a securely matched asset and liability proﬁle:
- Primary focus on credit risk management, maintaining a very high level of security for our policyholder benefits
- Assets selected with good risk return profiles and efficient use of capital
- PIC’s liability profile is long-term and predictable. This enables the business to invest in long-term illiquid assets, such as infrastructure
- Conservative default assumptions