Kingfisher has revealed it completed a £228m medically underwritten bulk annuity in the last financial year, the largest of its kind to date.

The announcement was made in the group’s financial results for 2015/16, in which it said it had purchased the annuity from a “major insurance company", which has been revealed as Legal and General.

“The annuity targeted the top layer of the scheme’s pensioner liabilities removing the longevity risk associated with these members, and using medical profiling to achieve the most favourable outcome.

“Measured against the long-term funding objective that has been agreed between Kingfisher and the trustee, the transaction generated a modest funding improvement as well as a significant reduction in funding risk,” Kingfisher reported.

The UK scheme ended the year with a net surplus of £246m, up from £194m last year. It attributed the increase to a higher discount rate applied to the scheme liabilities, which was partially offset by a fall in asset values over the year.

Commenting on the transaction, Kingfisher Pension Scheme chair of the trustee Clive Gilchrist said it is another important step towards its self-sufficiency target by 2030.

L&G head of strategic business, pension risk transfer Cheryl Agius said many companies are “weighed down” by pension deficits and “affordability” is a key consideration for schemes and sponsoring companies when transferring risk to an insurance company.

“We believe the growth in the top slicing approach is set to continue and for many schemes, will be the first step on a journey to full buyout. Medically underwritten bulk annuities were traditionally viewed as a solution for smaller schemes and the emergence of top slicing helps open up medical underwriting to medium and larger schemes as well.”

In addition, Hymans Robertson head of risk transfer and partner James Mullins said medically underwritten buy-ins have now covered over £2bn of liabilities, which included over £1bn in the fourth quarter of 2015 alone.

Medically underwritten bulk annuities represented over 12.5 per cent of all bulk annuities purchased by pension schemes during 2015. This is significant growth from around 5 per cent in 2014.

“Market share in the medically underwritten buy-in market up to 31 December 2015 is around 60 per cent for Just Retirement, around 30 per cent for Partnership (who are due to merge on 4 April 2016 to form JRP) and around 10 per cent for Legal & General, with Aviva having also written one medically underwritten buy-in," he added.

“At £228m this is the largest medically underwritten buy-in to date and Kingfisher becomes the third FTSE 100 company to have completed a medically underwritten buy-in, all of which have been ‘top slice’ transactions, which insure the pensioners with the highest individual liabilities."

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