Fantastic. Okay, hopefully everybody can hear me well. Good afternoon, everybody. A really, really warm welcome to XPS's second Capital Markets event after the event that we held in 2023. We'll start by saying a very big thank you for making the effort to come here on such a hot day and travel and get here to at least this mercifully cool room with some very good aircon that hopefully will hold out all the way through. There's a lot going on at XPS, and it's a real pleasure to take a little bit of time out. Of course, we've just recently reached the end of a financial year, and we're publishing our full results in June.
Therefore, we've got this little bit of a gap now where we can take some time out of the pressure of sort of the roadshow cycle, etc., to talk in a bit of detail about some of the things that are going on in the business. You'll know that we've just had a really good year. We're going to focus on some of the areas of growth and things that have been driving the business forward, and of course, also things that are going to keep driving the business forward into the future. What we're going to look at today in what's a little mini Capital Markets Day—we've got about an hour and a half or so of formal content—is to take a look at some of the growth drivers.
Now, across the business, there are lots, and we're not going to go into all of them today, but you know, to set the scene, regulatory change is a big driver for us. There was a big Mansion House announcement this morning again. Whenever you see a big news story about pensions in the press, generally think of us. That one specifically did not mean a lot to us, but there is a lot more coming from this government trying to drive, of course, use pensions as a driver for growth in the U.K. Lots of that going on. We've been super busy with these rectification projects that again stem from changes in the industry, rectification projects around court cases, GMP in the private sector, McCloud in the public, super busy in risk transfer. That is insurance transactions when pension schemes want to go and do bulk annuity transactions.
We're growing, of course, in the space of providing support to insurance companies as well. We're still winning lots of new admin contracts. John Lewis was our biggest new win, which went live just a couple of months ago. We're doing all this against a backdrop of quite a bit of change in our industry, and some of our competitors, we suspect, are beginning to struggle a little bit. Underneath all of this, we've got the deployment, ongoing deployment of really smart technology to help us be brilliant in what we do. Now, what we thought we'd do today is, rather than talk about all of those things, focus on these three specifically. Risk transfer, as I say, is about when a pension scheme is ready, got enough assets to go and transfer to an insurance company.
You might think when you cross that line and we do a transaction, that must be a couple of weeks and it's gone. You'd be quite misinformed if you thought that. Stephen and Jo are going to unpack and explain why there's a huge amount of work for XPS involved in all of those processes. That overlaps a little bit with the support we also give to the insurance companies themselves. Of course, we've recently done our acquisition of Polaris as we grow an insurance consulting practice. We're going to spend some time talking about that too. We've got David Honour, our Head of Insurance Consulting here, to take us through that. I'm delighted to say we've also got Roger Houlihan, founder of Polaris, to talk about that as well.
Underneath all of that, it's also about technology, brilliant technology in our administration business, in our trail business, and more widely. Now, these are the three areas. We chose them specifically because when we do our roadshows, we get masses of questions about these three areas in particular. Yeah, let's take some time to speak to the leaders in these different business units themselves to bring it to life for you a little bit. We're actually going to start with technology. I've got our Chief Technology Officer, Jon Marchant, here, and Helen, one of our actuaries, a user of technology, to bring things to life on that front before then we get to the other two topics. Just a little bit about housekeeping. Sorry, Jon. Housekeeping, we've got about half an hour of content on each of these.
Questions are very welcome at the end of each half hour, but we are on a bit of a tight timeline. We are going to try and restrict that a little bit. If there are two or three questions, that will be fine. There is loads of time for questions at the end. I should also say for questions at the end, Ben is also here today as well, and we can take questions on anything XPS related. We have plenty of time, a good half an hour at the end, set aside for that beyond these topics. We are also all around at the end. We are not taking a break because we are going to barrel through this. At the end, there are drinks and canapés and things next door.
You can talk to any of the presenters you saw today or any of the three of us and come and have a good chat about all things XPS then as well. Right, we have got some good content to get through. I will hand over to you, Jon. Thank you.
Thank you, Paul. I've been at XPS four years now. It's absolutely blown by. My background is largely financial services, but also a little bit of convenience retail. The reason I joined XPS, well, two reasons. I'd been CIO for a payments firm for 10 years, which is a really long stretch. I was ready for a change. Secondly, and more importantly, through the interview process with Paul and Ben and a few of the others on the exec, I could tell there was a real appetite to invest in technology to drive the business forward. Yeah, that was music to my ears, and that's why I'm here. In terms of what I'm going to be talking to you about, there's a little bit of context, so you know why we do what we do.
I'm going to spend quite a bit of time talking about Aurora, which is the new administration platform that my team wrote. And then we'll finish off with a little bit of AI, and I'll scare you all to death on the cybersecurity front. Technology is critical to XPS. It underpins everything we do as a business. There is genuinely a few areas where we have a real competitive edge. That's what I want to bring through this as we go through it. In terms of context, just start by sharing just the shorthand version of our business strategy. The reason I've put it up is because it gives direction to where we invest in technology. We want to be the one-stop shop for employers, trustees, and insurers. When they need something, we want them to sort of knock on our door.
To sort of pull this off, you need really, really good tech. In terms of how we deliver to that strategy, the business is structured in there's three business units. The first business unit is actuarial consulting. They make sure there's enough money in the pension schemes. That's essentially what actuaries do. The investment consulting team, they advise clients on where to invest their scheme assets. The third business unit is the administration team. They're the record keepers. They deal with members on a day-to-day basis. In terms of tech, basically the two consulting areas use similar technologies and systems. You've got hugely smart people building really complex mathematical models, for example, projecting forward of schemes, liabilities, and assets. It's no surprise that we are heavy users of Microsoft Excel. There is a lot of spreadsheets in our business. We use other third-party systems.
We license a product called PFaroe from Moody's. That allows us to do valuations, to look at cash flows into the future of schemes. We've got a third-party CRM system we use to manage relationships with clients. That's called Workbooks. We would never write a CRM system when there's good systems out there just to license. We do that. Where we want to sort of differentiate ourselves from the competition in this area, in these areas, is when we sit down with our clients. We want to bring to life our ideas, our concepts, our models, our analysis. To do that, we have written our own system called Radar. This is really the centerpiece of the advisory technical strategy. Helen is going to, rather than me drone on and tell you what it does, actually show you what it does.
Helen will give you a demo of that shortly. In administration, very heavy technical needs. It's operations function. We're supporting over a million members, over 600 pension schemes. We need workflow tools so that we want everybody to follow the same process to get the right outcomes. We've got to pay people on time, so we need a payroll system. Calculation engine, we write lots of calculations in that business, member-based calculations. And again, we use a lot of third-party systems. The workflow and content management solution we use is a tool called Alfresco from a company called Hyland, a U.S. company. We've just migrated onto their sort of latest cloud version of that, but we use that. ResourceLink is probably the most popular payroll system in the U.K.. I think half the FTSE 100 use it. That allows us to pay people on time.
Where we want to differentiate ourselves in the admin business, though, is on the level of service we give to members and the speed by which we can onboard new clients. You need a really good admin system to do that. When I joined XPS four years ago, we had four third-party administration systems. Sort of an accident of history. It's very easy for a young firm to grow through mergers and acquisitions and sort of collect the systems as you go along. The challenge with these four systems we had is the recting is a real barrier to us winning business. Four years ago, it was really tough winning new administration business. The technology was, we'll say yesterday's tech, but that's sort of being generous, really old technology. We did not own any of those four systems. The trustees, that was a really bad thing in their mind.
They wanted to get certainty of direction of travel on the administration system. We could not do that. Onboarding clients was slow and really expensive. Paul gave me an example, I think, just before I joined. We onboarded Aviva. It was a big scheme, but it took us 18 months and cost over GBP 1 million to onboard that onto our Penscope system. It is just you cannot compete when that is your base technology. We had one or two software releases per year. What you want to do when you are trying to sell into admin, you want to really impress the trustees and show them not only your systems, but show them the future roadmaps so you can get them excited about the technology, the functionality that is coming down the line. We just could not do that with two releases a year on these systems.
Writing calculations, that's always on the critical path when you onboard a new admin client onto your system. You've got to rewrite all the really complicated DB calculations. With these four systems, we're completely dependent on third-party software engineers to actually write the code line by line to do these calculations. Thousands of lines of code per calculation. Yeah, really expensive. Of course, we're paying away a lot of money in license fees. There is a cost to duplication. License fees and support costs were high. These are the four systems that we had in place at that time. Clearly, the goal was to get a new admin system. Paul, Dave, and I, we searched the market, scoured the market to see if there was a decent system to buy. There wasn't. We took a leap of faith to build our own system.
We call that Aurora. A big part of the benefits case on writing our own system was it allows us to consolidate, take out the duplication, take out all those license fees. It is not sort of an overnight task. It is quite hard work moving a pension scheme from one system to another. You have got to move the data from A to B, map it differently. You have got to rewrite all the calculations. We were going to go down a multi-year path to pull this off. Over that roadmap period, we effectively get rid of all four of these systems. What I want to do now is just give you a quick sort of run-through, a timeline so you know what we have done and what we still need to do.
On the left-hand side, as time progresses, you'll see the members, the number of member records that we have on Aurora. You'll see that grow. On the right-hand side, you'll see the savings we're making on license fees and support costs rise over time. It all starts summer of 2022. I hire a software engineering team, a small team, people I've worked with before, so I trust. We spend the first year writing from scratch all the functionality you need to manage and define benefit pension. We went live with IBM, which was a big, complex pension scheme. Interestingly, if we hadn't been doing this on Aurora, we would have inherited essentially a fifth admin system and another GBP 500,000 of annually recurring license fees. You see how it's easy to collect systems. That went really well. That was bang on time.
The client was delighted. The next year, we spent basically adding the functionality to be able to administer DC pensions and Master Trust pensions. That allowed us, 12 months later, to go live with SEI's MBT Master Trust. This is the Master Trust we sold to SEI. Part of that sale, one of the conditions was we'd move it onto Aurora. That went bang on time, under budget. At this point, this is where it gets quite interesting because at this point, we built a system from scratch and do DB, DC, and Master Trust pensions. We effectively were now open for new business. That allows us to onboard a few months ago in February, John Lewis, which is a colossally huge scheme, hundreds of thousands of members. We did that bang on time and under budget.
The following month, we moved the last pension scheme off a system called Compendia onto Aurora. That allowed us, it was Capgemini, and it allowed us effectively to turn off Compendia. One of the things I have not mentioned is putting together a roadmap for sort of consolidation. We had to take into account the sort of in-flight contracts we had with those suppliers. The sequencing is to basically migrate off a platform just before we have to renew the contract. If we missed a renewal point, we would end up with a really expensive five-year extension to a system we did not want. We got rid of Compendia a month before the natural end date of that contract. That saves us around GBP 750,000 a year in license fees. We are starting to see the real cost-saving benefit come through.
SEI liked us that much that we won their other Master Trust business. We are in the process right now of migrating that across. Aurora's got all the functionality to manage their Master Trust. This is a case of mapping the data and moving about. That is well on track. That is all happening. The rest of this year, we are going to be focused on our Blue Light Pension Scheme. That is the police and the fire brigade schemes that sit on the old TARE pension. That contract comes to a natural end point in February next year. The goal is to move everything off. We are well advanced on that. That will save us a huge amount of money. That is our most expensive system. In the year or two after that, we migrate off Penscope. That is us down effectively to one system.
I'm pretty sure we'll speed that up. We're already starting to move some clients off Penscope right now. As you see in that, we've got 1.3 million members. It's a big, proper, grown-up administration system. Importantly, we've saved GBP 5 million off our recurring annual cost base. While GBP 5 million is a big number, it's not to sniff at. It wasn't the main benefit we get from Aurora. The main benefit is it opens up a new business door for us. This was all the barriers I went through earlier. We've addressed them all one by one with Aurora. We've now got a brand new modern administration platform. It uses technologies that weren't there when our competitors built their systems. We've got real bragging rights. We're on the front foot when we go in for a tender. We own the system.
Onboarding clients now is low cost. We use our staff. We're not dependent on anyone else. It is really slick. There was a point, sort of August, September last year, when we were doing 20 schemes a month migrating onto Aurora. We can do these things in bulk. We have gone from one or two software releases a year with a really boring-looking technology roadmap to one or two releases per week with our own software engineering team. We are very nimble. We have sort of an agile version of agile in terms of a development methodology. The calculations issues being sourced is because we've produced a low-code calculation engine. This allows non-software engineers, i.e., cheaper staff, to actually write the calculations quickly. They're not writing thousands of lines of code. They're effectively building calculations from components that are already programmed.
They're picking out modules and factors and units. It means we can drive calculation building really quickly. It was that that allowed us to win a lot of the cloud refactoring work, which has brought in a lot of extra money. No one else can do that. There is the small matter of the GBP 5 million. That is what I wanted to say on Aurora. It was a big thing writing your own pension system from scratch, but it has gone really, really well. Just on the, you cannot really do a technology presentation these days without mentioning AI. The headline here is we are adopting AI at speed now. We have created 15, we call them AI assistants that are used right throughout our company. These are AI assistants that are trained on our XPS data. It is not generic internet data.
The staff find it really useful. They use this as a matter of course now. We can produce them. We have sort of been producing one a month. It is not a big thing to produce these now. The other thing we are really delighted about is we ran a successful proof of concept about two months ago. We sort of created this AI-fueled piece of automation that we essentially gave to the team in Middlesbrough, who are the contact point for a lot of the calls and emails and posts that come in. We put this bit of technology in front of the post that comes in and all the emails that come in from members. About 20,000-30,000 items per month. The tool that we have proved allows us to effectively take five days handling time for every one of those items.
We're now productionizing that. That's sort of going in as I speak. I think excitingly, it gives us the foundation in AI to actually adopt it further within administration to drive further efficiencies. Just to end, cybersecurity, it's like this subject never goes away. What's going on with M&S and Harrods and the Co-op is pretty scary. I set the team a target about three years ago to get the best independent cyber rating in the U.K. pension sector. We did that about two and a half years ago. In fact, it's better than that. A score of 800 effectively puts us in the top 1% of financial services firms globally. So the top 240 out of 24,000 financial services firms. If you haven't heard of BitSight, it's akin to Experian for credit scores.
Whether you like it or not, Experian is going to give you a credit score. You just hope your number is as high as possible. It is the same with BitSight. Whether you like it or not, they scan your external facing systems, check in for weaknesses, and give you a score. We are really proud of that. It takes a lot of work. It does not come easy. We got that score, say, two and a half years ago and maintained it since then. We got it just before one of our competitors had a major pension data breach. Suddenly, we were going pitching in for new business. At a time when usually cybersecurity was sort of item 10 on the agenda for trustees, it suddenly went right in at number one. We had a fantastic positive story. I am touching wood.
We had a fantastic story to tell. It did genuinely help us win new business. That's it for me. I just hopefully that's given you a flavor of what we're doing from a technical perspective. What I'm going to do now is pass you over to Helen, who's going to bring it to life in terms of how we use Radar today in the advisory businesses. Thank you.
Patrick's also from a Birmingham office and a consultant actuary there. He works with me on several clients that you'll see today. Actually, Patrick's on our Radar team, which comes in incredibly handy. They do say don't do live demonstrations that involve children or animals or live online tools because that's a terrible idea. We can all pray to the Wi-Fi gods today and hope that everything hangs together.
I've worked at XPS for 18 years, been here a pretty long time. I was part of the Punter Southall business originally before it was acquired in 2017. The reason I've been here so long is because it's a pretty dynamic place to be. There's always new stuff to get involved in. You're always new things to advise on. That's quite exciting. Actually, it's our culture. Our culture has made me stay. It's a wonderful place to work. We build really good relationships with our clients. Our clients are made up of pension scheme trustees and CFOs of businesses that have DB schemes. They're some of the best people to work with, but they've had an absolutely torrid time of it, let's be honest. We'll just bring a little bit of context to that now.
They've been paying millions of GBP into pension scheme deficit black holes for just decades. They've been hit with market shocks and financial turmoils on longevity increases and pandemics. When does any of this end for them? Forgive me, I do hear that a lot over the years. When is this going to get better? The best way I thought of bringing Radar to life today for you was to actually look at some of the stories I've had with my clients, some of the best of times and the worst of times, as it were, and actually show you what it feels like to make decisions in this kind of context. The first client I'm going to talk about is a manufacturing business, actually.
The reason the context of this business is important is because the size of the business has shrunk over the last century, pretty much, massively reduced in size. Their DB scheme that's attached to this business still represents the size that it was originally. The disproportionate, massive risk, the biggest thing that the CFO ever has to talk about is their biggest cost and their biggest risk, for sure. I think that's the context we had going into their 2019 valuation. Now we're going to transfer on to Radar and show you a bit of their story. The CFO and all the trustees have their own logins to this. It's not just us that can see this. They can see it individually too whenever they feel like it. We use it with them in trustee meetings. We headed into their 2019 valuation.
I can honestly tell you this was probably one of the worst meetings I've ever been in my life. We logged into Radar, and we could show them their new valuation position. I'll just pause a minute with what's on screen. You've got some projected cash flows, pension scheme long time into the future. Let's just focus on the left here. You've got assets of GBP 1.1 billion there, liabilities of nearly GBP 2 billion, huge deficit of GBP 750 million. Let's just remember what the size of that business was. This is phenomenally catastrophic for this CFO. This is not a happy meeting to be in by any stretch of the imagination. Not a happy meeting, but a very constructive one. We've got this Radar tool live in this meeting, and we could model with them some scenarios to help them get out of this scenario.
We could change investment strategy choices, and we could look at different contributions because you need both of those things together to get them out of this position. Two things combined. We ended up with a scenario of pension contributions going in of about GBP 80 million a year, you can see at the bottom there. Huge amount of money for the CFO. This was before they went into the pandemic. Quite painful, not a great position to be in. Things change, and stories do get better. We'll just go into the dashboard and see what's happened since 2019. Patrick's just changing the dates now to show us a different date on screen. We have the 2019 valuation. There are 1,000 tiny actuaries hidden behind the screen, peddling really hard on some spreadsheets right now. This is the power of Radar.
It does all of what that can do instead of over weeks. It'll do it in a couple of seconds. We've now got a surplus of GBP 80 million, which you can see in the middle. That's phenomenally different. Quite a big change. We're just going to take a minute to reflect on how on earth we got there. We'll look at the progression tab. The liabilities are this incredibly squiggly line in blue at the top. Now, the liabilities are all those projected cash flows of the pension scheme discounted to the current day. It's a big discounted cash flow model using interest rates and future expected investment returns. Very sensitive to interest rate changes, which is why over the course of 2022, you can see this steep decrease as interest rates went up.
In fact, you can see the absolute chaos of the mini budget around about this point here. Very sensitive to that market volatility and interest rates. We will also look at the asset line, which is in pink, which is doing something entirely different. To the CFO and the trustees, it is the difference that really matters. You can obviously see the gaps closed. If you just look at the deficit line on its own, you can see that upward swing. We have changed by GBP 800 million in just a three-year period. The fact is, when we were in 2019, we were setting contributions of GBP 80 million a year. When we get to 2022, we look at this and we say, right, contributions can turn off. That is an absolutely phenomenal position for this CFO to be in. However, there is a huge risk.
What's gone up at that kind of pace can readily change in the other direction. That is the kind of market exposure that this DB pension scheme was facing. If we go back to the dashboard a second, Patrick, we can have a look at risk. We do not just track what has happened. We can project forward scenarios into the future. We are just going to use our risk tab and look at lots of different projected scenarios and different sets of assumptions and see what it could do in future. Now, this bottom line, which is our kind of downside projected scenarios, you might not be able to see, but this line here is the zero line. Anything below this is tripping back into deficit again. If you trip back into deficit again, that is contributions turning back on for this business.
That is not a position that this business wanted to be in. They were at a point of trying to get out of the global pandemic, and they did not want to turn on contributions of GBP 80 million a year again. Quite frankly, I think that was a fairly sensible conclusion to come to. What could we do to help mitigate this? We were sat there in another meeting going, we can help model some live scenarios here. Let's do something quite simplistic on the investment strategy just to show you what is possible. This is just illustrative, but we are going to pretend that we are selling all the equities just for a moment. Bear with me. If we sell the equities, then we can see a reduction in the range of outcomes. This bottom line actually stays above the zero, which means no further contributions.
That is not actually what we did. We went away and refined that investment strategy in a slightly different way. You can see it is possible. What we did with that scheme then is we made changes to the investment strategy, tried to ensure that robust positive position for them. If we just fast forward to what we are looking at today, Radar does live updates. We use market conditions from yesterday. We can do it that close to the current conditions now to see what position they are in today.
If you're sat as a trustee or as the CFO on this scheme looking at the position today, and we just look at that deficit line, which is a surplus line now, you can see since 2022, when we implemented those changes, just the level of stability we've had. That is a very different context to be in. Why does this matter to XPS? Clearly, it mattered quite a lot to this business. Why did that matter to XPS? We did a very valuable project for them in 2019 to make that compromise agreement between cash contributions and investment return. We did a very valuable project for them in 2022, refining the investment strategy and resetting all of that to what you see today. In fact, this client made a direct referral to get a new client off the back of this.
They were so pleased with how this had gone and how proactive we'd been. They made a direct referral to a new client as well. This does generate growth for us directly, how we use technology with clients. Now, this upward swinging kind of funding positions, this is not that unusual. Market conditions have worked in the favor of most pension schemes at the moment, as you might be aware. We are just going to flick out of Radar a second and just look at the decisions that our clients are having to face. If funding positions have improved to the point of being in surplus and businesses are turning contributions off for the first time in decades, they are faced with this kind of unprecedented position of what on earth are we doing next? I have no idea. We have not even thought about this yet.
They have got two main choices here. The one on the left is an insurance transaction. I think this has been alluded to by Paul already, and it is our next session today. It is a very well-trodden route for pension schemes. When you can afford it, you can pay your premium to an insurer and transfer the liabilities across to them. You might do that because they will pay your member benefits in full. It will take it off your balance sheet. In fact, you can all walk away, job done, no more pension meetings. That might be the case for story number one. Let us remember how disproportionate it was for that business having the risk on the balance sheet. Not all schemes will want to go down that route.
The other option, which is creating great debate in the industry at the moment, we've got regulatory change coming to facilitate this, is running on further, carrying your investment strategy going and seeing what you can do with it. This is run on using a scheme surplus. You might do that because there are very valuable things to do with that money. We did some research. We quantified this at a potential of GBP 4.5 billion a year's worth of surplus out there in the economy that we can do something valuable with. That might be putting it in the pockets of your defined benefit pensioners, enhancing their pension increases, getting them better inflation protected. It might be enhancing your DC provision. In fact, if it is going into the DC world, then that is getting reinvested out into growth markets as well because that is where DC investments are. Hugely exciting.
We're very passionate about talking about this, not just with our clients, but out there in the press as well. In fact, because we think this crossroads is so important, we've built this into Radar already. We don't quite know how the regulations are going to play out for this. There's lots of debate out there. We wanted to build it because our clients are asking, our prospective clients are asking, and we need to be able to show it. That's where our next story comes in. Patrick's just dipping back into Radar for us to show us story number two. This is another large-sized pension scheme, but it has a much bigger business backing it. Actually, they're not quite as concerned about the risk as pension scheme number two.
If you look up at the funding position in the middle there, we've got over GBP 1 billion of liabilities, and we've got a GBP 170 million deficit. That's the shortfall to the insurer premium. They can't quite afford to insure this scheme yet. They haven't decided that that's what they're going to do anyway yet. They want to look at the options. If I said in 2019, I had the worst meeting ever with my previous client, the meeting I had a couple of months ago with this one was probably one of the best meetings I've ever had. It was brilliant. We used the new surplus run-on tile that we've got deliberately to show them the art of the possible of that future run-on option.
If we click through into this, and we're going to show them how that GBP 170 million shortfall to the insurance premium will develop over time. Just as my 1,000 tiny actuaries behind the screen calculate some more numbers, it will create a very pretty chart for me in just a moment. Lots and lots of spreadsheets. I mean, it's just mind-blowing how many calculations have to go into this to project these numbers. What you can see is at the moment, we've not quite got enough. In around 2031, when the lines cross over, that's when you could afford insurance if you wanted to. If that's what you're going to do, you get Steve and Jo involved, and they will talk you through how to do that and get you prepared to do that.
If we just look at this right-hand side, if we carry on with this investment strategy, that is the size of the prize. That is the value of your surplus into the future. That is how exciting this meeting was to say, well, what could we do with that? We had all the trustee representatives and employer representatives in the same room chucking their ideas at us and us modeling different scenarios. One of the things we did model for them was what it could add value to in terms of DB pension increases. They have had a lot of pensioners that have not had inflationary increases in the past, particularly through the high inflationary environment. Could we spend half of that generated surplus on defined benefit pension increases? You can see on the bottom here, you are going from an average below CPI inflation to something much higher.
You might not spend all that. Some of it might be to backdate rather than future increases. It shows you the kind of amount that is possible for your DB pensioners. That is incredibly good for pension scheme members. The employer representatives were also in the room. They were quite interested in DC provision. We could model the other half of the surplus for DC for them. This business, this is their current staff members. This is why it is so important to them because their current employees are not in the DB scheme. They are in the DC arrangements. Now, we can model this. The other half of the surplus going towards 10% enhanced DC contributions. I mean, that is a huge amount. That would put this business in kind of market-leading kind of attract and retain staff at decent DC provision.
It would get better outcomes for all their future DC members. Importantly, it is paying for it from the surplus. This is a company that is potentially not paying anything towards future DC provision now. They are actually funding it from money that is already there. That is incredibly compelling for this business to look at. What happened next? We do not actually know what they are going to do yet. They have got very excited. They probably are going to run on. What we have got now is a huge project to work with them. First of all, we need to work out how to do this safely. It is going to involve our Covenant colleagues. It is going to involve our investment colleagues to work out how to structure this and how much surplus to share, as well as ourselves.
is also going to involve our DC colleagues to work out the future of their DC provision. This is a huge project now, and it is going to run for several years to work out what it is they are going to do. It is an ongoing client from there. That is the value of XPS growth by being able to show them some of this stuff to get them engaged and get them doing some of this work. It is absolutely fantastic. We use this for all our clients, absolutely every one of them. Everyone has access to Radar. We use this in meetings. Actually, it is really efficient for us as well because what we can do is just take screen grabs out of it, drop them in reports quite quickly. It saves loads of our time.
We're not actually using those 1,000 tiny actuaries to do all our calculations all the time. We also do this for prospective clients. Now, if anyone actually reads to page 100 or whatever it is in the back of a financial statement, you get to all the pension notes. From those pension notes, it's quite high-level information. We can take that information, and someone like Patrick can build a Radar for them in just a day. That means we can take Radar on a laptop into a coffee shop and have a really decent chat about the art of the possible of all this surplus run-on. Do you want to buy out in two years' time? All of the possibilities around their investment strategy, we can do that in a coffee shop.
I met a CFO a few weeks ago in a coffee shop, and she said to me, "I've just not seen this stuff before, Helen." I was like, "That's okay." She said, "I've just got a report from 31st of December giving me a funding update from however many months ago." I was like, "That kind of is what it is for a lot of clients out there." We're quite passionate about that everyone should have access to this because Radar is two things, right? Radar is really quality technology. It's a lot of functionality in here. We're making sure that we're building in new functionality as and when our clients need it. It looks really good. Actually, it's our culture of engaging clients and prospective clients with it that makes the difference.
If the human brain processes images around 60,000 times faster than it does text, if this is how we engage our clients using Radar to make their big financial decisions and see the future and the opportunities and the possibilities for them, they make decisions and they take action. That is what facilitates XPS growth. Going back to the idea of that crossroads that all our clients are facing at the moment, we have lots of clients going down the route of risk transfer. We will speak to Steve and Jo about that. We have a lot of clients that are interested in the other option. What they do need is engagement and advice at those three points in time. That is what we are doing with our clients.
I think we're going to take a pause for some questions on either this or on Aurora or cybersecurity or whatever the questions are. Yes. I think we've got a roving mic. Hang on.
Thank you very much. Thank you. I've got a question. When you were just giving the example about being able to show this in the coffee shop and the amount of information you can get from reporting accounts, so can you do this for someone who isn't your client? You can go and have a quick chat with them.
Absolutely. As long as they've got published financial statements, we can take high-level information. There's lots of assumptions underlying it, but we can absolutely model something and have a really good... And we do that for every prospective pitch we do, but we do it in the informal conversation setting as well.
Okay.
It is a great marketing tool as well.
Absolutely. Yes.
Fantastic. Sorry, I'm going to ask two questions. That was question one. Question two was just on the GBP 5 million of cost savings per annum when 2027 comes up. I just wondered what your extra costs are for the staff that you've presumably had to take on, the tech people.
The GBP 5 million, of course, that was GBP 5 million that we were paying for those four legacy systems three years ago. With inflation, that would have gone up. The team that we have to maintain that on a regular basis is a cost of about GBP 500,000. It is nothing, so.
Thank you very much.
It is Robin Savage from Zeus. When you floated, or certainly shortly after you floated, Radar existed and was being used.
Could you talk about how Radar has been improved over the last seven years and maybe the sort of way in which the adoption by existing clients and the Punter Southall clients has sort of improved over time?
Absolutely. I think I've been directly involved in some of the changes that we've made. So some of the functionality that springs to mind, member options was a big one I was involved in probably about seven years ago now. We put the member option functionality in. I'd have thought it was shortly after becoming XPS, I think, and we created that functionality. Really important for people to be able to model the impact that the future potential cash flow changes they had could have on liability savings, so trivial commutation exercises. What happens if lots of their members started transferring out or stopped transferring out?
It's really important to be able to see those cash flow changes. So we did that functionality. This year, we've done two major things. We talked about regulatory change in Paul's introduction, one is which the funding investment strategy regulation. So we're able to show the overlay of things like your longevity and reliability periods on the Covenant side and how your funding strategy changes. It's not a bit that we've shown you today, but we've built that in. And then this surplus modeling is the huge one. We don't even know its regulations and what's going to be possible and the details of it, but we've already built it and we're already showing it. So I think we're kind of ahead of the regulations on that one. So there's some of the big changes we've sprung to mind.
There's lots of smaller changes, interface changes, things that made it easier. We're always adding new investment indices behind the scenes because our clients invest in different ways. Different fiduciary managers give us feeds and data feeds into it. There are a lot of efficiency changes and operational changes behind the scenes as well. I think your second question was about how we adopted it across the Punter Southall business. I'm from the Punter Southall side. I think it was fairly clear to us that this was an expectation for all clients to have this, and we shifted pretty quickly. I think Paul would have been quite cross if we didn't. This was the way in which we needed to engage all our clients, and that's what we did.
It's not the end of the earth to build that functionality, to put a scheme on Radar, but it's an expectation that they are all up to date and they're engaged in every meeting using it. That is how we behave.
I'll walk through the story of that. I'm sorry, we must then move on to the next. Very briefly, I did, when the Punter Southall deal happened, a client up in Scotland said to me, "No corporate merger in history has ever brought a benefit for the clients of those being taken over, has it?" We loaded them on Radar, and they'd had their first meeting a month later. I called back, and they said, "What are you going to charge me for that?" Again, no, this is all part of the ongoing service. This is the way we do stuff.
He, not even grudgingly, actually, but with a warm smile, said, "We've been significantly upgraded by this." That was a real pleasure. Stories like that echoed around through the business. Ancient history now, but no, we've been very proud to use this for a long time. It is generally true that whenever we take on a new client, they get used to this and they love it. It is not something that our biggest competitors have got anything like. It is genuinely a different and better way of doing things. I said, "No more questions," but there is one over there. I must take it then.
Sorry, I am borrowing this one. Thanks for taking my question. It is Abid Hussain from Panmure Liberum. I have got two questions.
The first one was on the example that you gave where the scheme potentially generates a surplus, and you said that it could potentially move that surplus from the DB scheme to the DC scheme. I was just wondering how that was possible. How is it possible that the scheme rules of a DB scheme would allow the trustees to move the surplus away into a completely different scheme? That was the first question. The second question, just more broadly, just following on to that sort of the run-on side of things. Does it actually make sense for a scheme, a DB scheme, to continue to run on if they are in a surplus today and not just lock that surplus in, however, whether it's through derivatives or through some asset strategy or whether it's through a buyout?
Should they not just lock in rather than sort of potentially try to generate a surplus? I'm just trying to understand what are the dynamics in that?
The drivers to two different forks in the road. Very quickly, because otherwise Paul's going to lynch me. I'd say the answer to both is it depends. That's a very actuarial answer. To the latter point, I think story number one is a good example. The disproportionate risk is clearly going to mean that even though they're a big enough scheme to generate a surplus, they're probably not going to want to because they probably don't want to carry on with the risk. I think if you're a scheme that is well supported by a business of a similar size and you've got the Covenant support behind you, you could take some investment risk off the table and still generate a surplus.
Like I said, it's about the safe way of doing it and whether that makes sense for you. I think there's definitely stories in both camps, and we're going to see a mix of the two. First question, which do scheme rules allow? Some schemes have both DB and DC sections, so they're already legally one entity anyway, so you can do that. If they're not the same legal entity, I think it depends on the regulations as they emerge, and we'll see that. I think on the first, there's still a lot of schemes that are in the position where they're under the same trust, and they can already do that.
Thank you.
Right. Good afternoon, everybody. I'm Steve Purves. I'm Head of Risk Transfer at XPS.
I joined XPS in 2022 from Aon, which is one of the three big consultancy firms in the market. The reason I joined XPS was there was such a big potential for risk transfer work within the XPS client base and had all the support network and the investment to really make this succeed. We'll talk you through today a bit about how far we've come on that journey already and the future potential for growth in this market.
Hi, everyone. I'm Jo Carter. Similarly to Steve, I've been at XPS for about three years now, and I came from one of the big three consulting firms. I was at Mercer for 25 years before making the decision to come to XPS. I made that decision because I was excited to help Steve grow the risk transfer team here.
But also at the time, there was a real buzz about XPS in the market. Everyone I spoke to at XPS said it was a great place to work. I can say now, after three years here, it really is.
Thanks, Jo. We are going to go back to basics. We have touched upon it a bit today already. When we are talking about risk transfer, what we are primarily talking about here is the pension scheme, DB assets transferring across to an insurance company who then take on all those funding risks of investment, inflation, interest rate, and longevity risk, as well as in due course, the direct member administration. It is a big part of the market now. We will talk to you a little bit about how far we have come in terms of the growth.
You can see in 2020, we had two team members doing risk transfer work. That has grown really quickly to 42 team members today, and we're still growing in this part of the business. We generally did about one or two deals every year involving tens of millions of assets. Today, we're doing about 30-40 deals every year. Just last year, we did about GBP 4.5 billion worth of pension risk transfer for DB pension schemes. Quite significant growth over that period. You can see there on the right, some of the larger schemes that we've done transactions for over the last couple of years. That alone has covered GBP 6 billion worth of pension scheme assets. We're really becoming quite prominent in this really important area of the DB advisory market. Where does this demand come from?
Helen's spoken quite a lot about these legacy DB schemes and how they've invariably been quite underfunded over the last couple of decades, mainly because of a lower interest rate environment. Step forward to 2022, and we can see as interest rates have gone up, those aggregate funding positions have improved quite significantly. This chart here is the aggregate funding position of all the DB schemes in the U.K. on a buyout basis. You can see there we've moved from 70% in 2022 to 110% today, which is quite a remarkable difference in that three-year period. We've also seen a trend in that blue part of the graph where lots of these schemes have now locked into those positions. They've de-risked their assets, and they've hedged out things like interest rate and inflation risk. We really think that these funding positions are here to stay.
We're not anticipating a reversal back to the 70% numbers. No surprise then that we're seeing quite a big increase in activity in the risk transfer market. You can see there that steady increase, quite a drastic increase over the last five years. Last year, we saw an all-time record of nearly 300 pension schemes moving through to risk transfer with about GBP 50 billion worth of DB pension scheme assets. Quite a big number that we're talking about here. If you take a step back and look at that in the context of the DB market overall, there are still 5,000 uninsured DB schemes in the U.K., and there are more than GBP 1 trillion in DB assets out there.
Whilst we've had big record years, big growth in the market, we've still barely scratched the surface, and there's still a lot more to come. Now, not all those schemes will go down the risk transfer, as Helen has mentioned already. Some will move to run on, and some will take a pause and wait for all the regulations to come out around running on for surplus. We think there's still a significant amount, probably 50%-60%-70% of the schemes over the next decade will go down this insurance route. The other thing to add here is whilst the market has grown, we've not just grown with the market. In 2020, we did less than 1% of the transactions in the market, and today, we're doing more than 10%.
The market's gone up, but our share of that market, our market share has significantly increased over that period as well. As you might imagine, this is mirrored on the supply side as well. You can see there 20 years ago, 2005, there were just two insurance companies in this market, L&G and Prudential. Look forward to today, and there are 11 insurers active in this market, which just shows the appetite of pension schemes and the vibrancy in the insurance market for this type of business. That is a really interesting opportunity for us more widely. David and Roger will come on to the insurance consulting opportunities that this brings as well as such a busy area in the insurance market.
When we look at risk transfer, probably quite a good way to explain it is that it's nothing like compare to meercaps.com and buying an insurance product, and much more like corporate M&A transactions, and in this case, spanning over four or five years in most cases when we look at risk transfer. We talk about risk transfer in three key stages. The first one is the preparation work, which can be quite significant for pension schemes, and we'll come on to that shortly. This is what we call preparing schemes and becoming transaction ready. The second is the transaction work. This is the actual corporate transaction with an insurance company, and this is what we call the buy-in. We move to the third stage, which again is quite a significant stage in moving the scheme all the way through to buyout.
This is all the finalization work involved in transitioning a pension scheme all the way through to an insurer where the insurer takes on the full responsibility and pension scheme members become insurance company policyholders. As we talk through today as well, we'll talk about how XPS accesses that revenue and that value chain, and there are significant revenue opportunities in all three of those stages. As an example, we'll take a GBP 500 million scheme. We'll talk you through the revenue in each of those phases for that type of scheme. Funding positions are really good, and that all sounds quite easy for pension schemes. You might think they're all going to rush to the insurance market and quickly buy in and buy out their pension schemes. Unfortunately, it's not as easy as that for pension schemes.
I think a good analogy we often use is it's almost like selling a house. If you're selling a house, it's livable. You're happy living in there, but it's probably not in a position where you could immediately put it up for sale with one of these estate agents. You tend to have to do work to make the house look more presentable to potential buyers, as well as doing all those jobs that you've been putting off forever and never getting around to doing. That's very much like preparing a pension scheme. There's often lots of work to do. Pension schemes are quite complex beasts. They sometimes have been set up on old legacy systems, maybe from the 1980s. Lots of hard copy member files not correctly reflected on electronic records, and lots of pension schemes are run on an on-demand basis.
When a pensioner comes into retirement, it's not as easy as just pressing a button on a system. Often administration teams need to pick up files and work out these members' benefits from scratch so they're completely accurate when they go into payment. Now, from an insurance perspective and becoming transaction ready, this means carrying forward this work and doing possibly thousands or tens of thousands of member calculations before you're in a position before you can engage with the insurers. Often that throws off a lot of data cleansing activity. Similar to selling a house where you might have a surveyor coming in and looking for problems that you didn't know existed through a more detailed due diligence on the quality of your house, that's very similar to a DB pension scheme in the guise of a legal advisor.
Now, that legal advisor will come in and do some very forensic due diligence through the whole history of the pension scheme, and that can be going back decades, making sure that members' benefits are completely correct, they're in line with their legal entitlements. More often than not, that gives rise to some quite large rectification projects to do before we can get to that point of becoming transaction ready. This phase in the project can take a year, sometimes two years, to get in a position where you're then ready to go out to the insurance market. Again, using the GBP 500 million pension scheme example, we're looking at probably about GBP 1 million in revenue opportunities for XPS in this part of the project. That gets us to the point where we've prepared the scheme.
We're in a great position now to do the next phase for the client and take that pension scheme out to the insurance market. To continue the analogy, that's where your house is now ready for sale.
Thanks, Steve. We are now moving into the transaction phase of the project where we approach the insurance market and do the buy-in transaction. This is a large and intense phase of the project in itself, so it usually spans several months. Part of our role is to manage that process, but really, it's about setting the strategy and adding value for our clients as we go through. First of all, the strategic approach to market. What's the best timing? Is there a particularly good pricing opportunity in the market at the moment, for example?
Are we going to all 11 insurers that Steve mentioned, or are we going to a long list and focusing on the insurers that our client would really like to transact with? When we approach the insurers, we need to give them all of that detailed scheme information and data that Steve spoke about, which is the output of the preparation phase. The insurers then take eight weeks to produce their initial quotations. In that time, we're not sat waiting. The insurers are raising queries, and we're working really closely with the XPS administration and actuarial teams to answer those queries and to make sure the insurers have everything they need. Once we have those initial quotations on the table, we need to analyze and compare them.
We sit down with our clients, we discuss the relative merits, and we help them agree a shortlist of insurers to take into a final round of bidding. It is in that final round of bidding that we are really negotiating hard with the insurers. One of the key areas we are negotiating is price and driving that price down. That is where we can really add value and leverage the strong relationships that we have with all of the insurers in the market to our client's advantage. If we have got it right in terms of that initial market approach, by this point, we have all of the insurers engaging really strongly and fighting hard to win the business. We get the best and final quotations on the table, and we need to help our clients choose their preferred insurer.
We will talk more about the detail of that in a second. Once they have chosen that insurer, we go into quite an intense period, again, of a month or so, where we are agreeing the legal contract with the insurer and lining up the premium payment and the transition of scheme assets from the scheme to the insurer. At this point, we have got the XPS investment teams really heavily involved. That is a big asset transition, needs careful management. Importantly, we need to pay the premium in line with contractual deadlines. It is an intense period to make sure everything happens as it should. Now, in terms of XPS fees for this phase of the project, if we go back to the GBP 500 million example scheme that Steve mentioned, our fees for this phase would be probably about GBP 500,000 in total.
If we move on to more of the detail on how we help our clients choose an insurer, unsurprisingly, price is often the key deciding factor, and it's usually the cheapest insurer that wins, but not always. There are always other factors that come into the decision. Importantly, the contract terms, there is a big legal contract to agree here. Some of the insurers will be more flexible than others. We'll be driving those commercial contractual negotiations and really focusing on the areas that matter most to our clients. The price and contract terms are really the offer on the table from the insurer. What about the insurer as a counterparty? Are they going to be there for the very long term to pay members' benefits as they fall due many, many years into the future?
Now, this is where we bring in our XPS Covenant colleagues to advise our clients on the financial strength of the insurers and really help them get comfort there. The other thing to look at, and it's becoming more of an area of focus for our clients quite rightly, is can the insurer take on the administration of the member benefits efficiently, and are they going to administer those benefits properly and well in the future? We can do a lot to help our clients really dig into all of that and understand the insurer capabilities there. In practice, actually, once we get down to a shortlist of insurers, we often facilitate a beauty parade so that our clients can see the insurers face to face and hear from them directly on their commitment to that good member experience.
After completing the complex and intense work to choose the insurer and transact, the insurer goes on risk, and we do what we call the buy-in transaction. It is this step that often hits the headlines. We have shown the headlines for a few XPS schemes there on the page, and you may have seen similar headlines in the FT, for example. These headlines are really important to XPS. It is really a snowball effect. The more buy-in transactions we do, the more headlines we have, the more buy-in projects we win, and our part of the business really keeps growing.
Okay. You have seen the headlines in the newspapers that the company has done a buy-in. They have insured the pension scheme liabilities. You might be forgiven for thinking that is most of the work done.
Unfortunately, like most things in DB pension schemes, it's not as straightforward as that. There is quite a significant period before you can actually transfer all the administration across to the insurer. There are lots of legal steps to go through before you can do that. Even though you've locked down those key pension scheme risks from a financial perspective, moving to an insurer is much more complex than that. We've also seen lots of schemes these days having surplus pension scheme assets. They've got more assets than are required to transfer to an insurance company. Again, a good problem to have, but there are some quite significant steps to go through before you can distribute that surplus based on the current regulations. That's almost a project in itself, and we've even set up sub-teams who will deal purely with surplus distribution for schemes going through this process.
There's lots of final data cleansing to do as well as part of this. There's usually about half a dozen member communications. Again, just check that every member's benefit is correct, because when you do transition to an insurance company, there are no second chances to get things right. Quite a lot of detailed work to do, a lot of fine-tuning work to do before you can then be in a position to transfer to an insurer. Obviously, there's lots of checks and balances during that process as well. Migrating all the members' data onto the insurer system is a significant project as well. In the meantime, making sure that pension benefits are being paid as normal and there's no disruptions to the continuity of members' benefits being paid. This is a really significant problem, a significant part of the project.
It sounds like quite an easy step to do, but it's often the most detailed and labor-intensive part of the project to get to that point of full buyout. Again, using our GBP 500 million pension scheme as an example, this part of the project is easily another GBP 1 million in revenue. Again, quite a significant amount of work to do there as part of the risk transfer process. Going back to the three key stages, we looked at a GBP 500 million pension scheme here, and you can easily see us incurring revenues of about GBP 2.5 million-GBP 3 million during that process. Quite significant.
When you look at the XPS client base, 600 pension schemes, now, not all of those will go down this route, but let's say if we take half of those plus all the non-XPS clients that we're winning at the moment, then you can see these numbers extrapolating into the hundreds of millions over the next decade. Really significant growth area for XPS during this. During these risk transfer projects, it's also got to be remembered that all the care and maintenance work that we're doing, so valuations, member administration, investment work, covenant reviews, all this continues during this five-year process as well. Multiple disciplinary projects within XPS, as well as maintaining the work that we're already doing for those clients. If we look at why clients are using XPS for risk transfer, this is an area that we're really growing as a business.
We've built an exceptional team. We've got 42 members of staff now. Lots of those have got 20 years plus experience. This is the sorts of things that clients will buy when they're appointing risk transfer teams. Often these appointments are put out to competitive tender, and we're winning a lot of these in the market right now. We've also got lots of capabilities in that post-transaction part of the process, which lots of advisors don't have. Again, it's a good reason why clients are selecting XPS, because we can see these transactions all the way through to buyout with an insurance company. We've also got the full range of wider services, so covenant reviews, admin staff, data cleansing specialists, everything clients need for a successful risk transfer project.
You can see there the growth of XPS over the last couple of years, just two and a half years, we have done more than 100 of these transactions. We have 150 clients in the pipeline. About a third of those are from non-XPS, mainly from the big three consulting firms. Our revenues in this area have gone up from about GBP 1 million in 2022 to about GBP 15 million last year. Quite a significant growth over that period. If we move to the next one, looking at the future opportunities, like I said, there are 5,000 uninsured schemes out there in the market, many of which are non-XPS clients. We are winning lots of non-XPS clients. It was early last week that we won a GBP 400 million mandate for a scheme which was completely unrelated to XPS from one of the big three.
The reputation is building, and we are winning lots of non-XPS appointments there. The run-on versus buyout debate, again, lots of good consulting opportunities for us there. We're often brought in to have a discussion with clients around the two options available, which we're ambivalent about as a firm, but we can give some really good advice on both those options for clients. It is also got to be remembered that although the pension scheme members are moving across to insurance companies, those members' benefits need to still be administered for the next 50 or 60 years. Lots of opportunities for us to help insurance companies on the administration side. Finally, and as a segue into the next section, lots of insurance consulting opportunities. This is a huge transition for insurers. It is the biggest single growth area for insurers in the U.K., the risk transfer market.
There is big pressure on the insurers to deliver growth in this market. That gives off separate opportunities for David and Roger, which we will cover in the next segment. I think that wraps up the risk transfer slot. I think we are probably moving immediately to questions.
There is a quick question. Yeah.
A quick question.
Because we have got the whole first time at the end for questions to come back to.
Thanks for digging my questions too, if I may. What was the contribution to revenue from risk settlement in full year 2025? At what rate do you expect it to grow from here? Second question, it seems as though it has been a slow start to the risk settlement market calendar year to date. Are you seeing a short-term slowdown in the market due to things like run-on?
The first question, yeah, as Steve said, it's for the full year 2025, it's about GBP 15 million of revenue. In terms of the projections, look, I think Steve highlighted there's about 150 schemes in the pipeline. It will depend on the capacity in the market as well. We're confident that we'll be able to grow on the 15 for next year.
Shall I take the second one? In terms of the temporary slowdown in the market, what we are finding is there are a lot of schemes going to the insurance market still. In terms of the insurer numbers, those schemes are at the smaller end of the market. We're seeing far fewer of the billion-pound transactions going through risk transfer at the moment, primarily because they're waiting to see what the government regulations are around running on for surplus.
It tends to be those larger schemes where that run-on versus buyout is a more difficult decision to have. We are seeing lots of activity, but the volumes of assets transferring to insurers is a bit less than it was last year. We are expecting that will probably be a temporary situation.
Thank you.
Hello, it is Barrie Cornes from Panmure Gordon. I have just got one to keep it quick. Just wondered if you could comment on how competitive the market is amongst those insurers. You mentioned smaller schemes, but obviously there are now 11 players. Are you seeing much competition? Is it getting quite fierce?
We have seen a lot more competition this year at all ends of the market. If you take a, let us say, a GBP 20 million pension scheme, last year we might have seen one or two insurers. Sometimes insurers require exclusivity to even bid.
If we look at what it's like today, we might get four or five insurers bidding on that. All the insurers have got different segments of the market. It is very rare to get all 11 bidding on one single transaction. The number of insurers bidding per scheme that we take to market has probably gone up by about two or three insurers at every level. Definitely more competitive. Three new entrants are all quite hungry to establish market share. Existing insurers are quite hungry to grow. We are seeing that coming through.
Thank you.
Hi, I've got a couple, but hopefully quick ones. The first one is, do you work with all the insurers who play in this market?
The second question is, how long does it take to do this work from going through the prep work, the breaking work, any sort of accountability due diligence, through to the actual transfer of the assets? I appreciate how long is a piece of string, but just give a sense of how many years of work this takes for a given scheme.
Yeah, sure. We work with all the insurers in the market. When we take schemes to market, sometimes we run a whole-of-market approach, and they might self-select themselves. We have done work with all the insurers in the market.
Secondly, in terms of how long this whole process takes, as we've gone through the three stages today, typically from a scheme that needs quite a lot of preparation work, you could be easily looking at five years from starting the preparation work all the way through to full buyout and transferring across to an insurer. That's a typical timeline for a pension scheme.
Okay.
Hi everyone. I'm David Honour, and I lead XPS's insurance consulting business. Now, before we sort of get stuck into all the exciting activity that we've been doing to launch our insurance consulting team, I thought I might just step back and give you a little bit of history about my journey in the insurance space. So I've worked in the insurance space for the last 20 years. Started off my career in the U.K., worked with Ernst & Young, then moved to KPMG.
In 2017, I had the opportunity to go across and work in the U.S. market. I joined PricewaterhouseCoopers there, and I had the privilege of leading their insurance consulting team across actuarial and finance, delivering large-scale transformation projects for the multinational clients and the U.S. domestic clients that were served over there. When my family and I decided to come back to the U.K., I had an opportunity to assess the U.K. market. What I found was it was really being underserved for the current insurers based on their needs of today. With the right platform and a different approach to doing things, you could really have a huge impact in this market. Let me bring that to life. Why was XPS that right platform to grow an insurance consulting team from?
I break that down into four key things, really, which was, first, as we've heard, the U.K. pension risk transfer market is huge. It's growing. Anyone that's going to have a credible insurance consulting business needs to have deep pensions expertise as the insurance and the pension Venn diagrams or worlds merge together. XPS obviously has that in abundance. Second, you need to have a technology-forward organization. The pace of innovation and the new emerging technologies, firms are trying to grapple about how they use them, how they get value, how they get efficiencies in their organization. You need to be at the forefront of that. As you've heard from the demonstrations today, that's central to what XPS is about, bringing the best-in-class solutions and investing in that technology capability. Third, it's about having an established brand. That's very helpful.
Actually, when I was learning more about the XPS business and talking to Ben and Paul, I was really pleased to learn that they were already servicing the insurance clients, as you would expect in some of the biggest names out there. They have a very credible reputation in that market. We could build off that. Finally, you need to have a culture of doing the right thing. It is a war of talent out there. Really, to grow a new best-in-class team, we need to attract the right people. That is what is central and at XPS's heart, really. That made me very excited when I put all those things together, that XPS was a fantastic platform to launch the insurance consulting. Now, let us take it back and get back into the story. I will pick up where Stephen left off.
He talked about all the work that the pension schemes have to do to transact with an insurer. There's a huge amount of work there. I would argue, obviously, that the insurers have even more work to do. They're the ones that are buying the house. They're the ones that have to maintain the house for the next 50-60 years, and hopefully get comfortable in living at it and maybe improve things as well. They go through the transact and transition periods, but then they also have to integrate this into their operations, and they have to manage and optimize the business over time. To bring this to life even more, of course, they're doing all the pricing and the data due diligence and the validation. Then they have to set up their own administration platforms.
They have to set up the finance and actuarial systems. They have to redesign their operational processes. They have to bring in the right talent and expertise to manage these schemes. Also, because they're in a stricter regulatory environment, a lot of the times for the bigger schemes, that actually leads to them having to go back to the regulator to seek approvals for changes in methodologies and assumptions. Going forward, in order to avoid the wild swings in surplus that Helen showed in Radar, they need to manage these books of business effectively. To do that, they really need to have deep insight into their earnings, cash, capital, and asset management profile. They need the technologies and the capabilities to do that so that they can react proactively to anything that comes up in the future that they need to deal with.
There is a huge opportunity for us just within this space to deliver innovation, operational efficiencies, and provide long-term value to insurance clients. Stephen mentioned that really, when you get to the point of transacting with an insurer company and they go from buy-in to buyout, that is a two- to three-year cycle. You can easily think about bringing the latest AI and automations to that to really kind of condense that, help insurers increase their deal volumes and reduce the operational burden that they have as they take on this huge amount of work. We have spoken a lot today about the pension risk transfer market, but it is really only one section, and it is the tip of the iceberg in terms of the insurance market. Obviously, there are all the other sectors from life, health, GI, and reinsurance.
Insurers have been and are continuing to face a huge amount of change in that insurance market. They have faced regulatory and accounting change. Post-Brexit, they dealt with capital changes in their capital regime. They have had IFRS 17 as a new accounting standard. They have had all the volatility in the markets and making sure that they are managing their business effectively through that. As we have spoken about, there is increased competition, particularly in the PRT space with new entrants like Blue Mont. They have new requirements about looking after customers through the FCA consumer duty requirements. On top of all of that, they are all looking at cost pressures. If you look at Phoenix's year-end results, part of their three-year strategy was to deliver GBP 250 million per annum of expense savings.
They are trying to do all of this in the face of the new technologies that they have to adopt, understand, and then implement to drive efficiencies. If you looked at Aviva's year-end position, they have 150 GenAI pilots in various states of development or deployment to drive that efficiency and better customer engagement across their business. You can easily see why they need help, and there is a wide variety of pressures there that they need to react to. We step back and think about who services them today. They have clearly got their in-house insurance teams.
As one client sort of flippantly said to me, "They staff for what's likely, not what's lurking behind with a flamethrower in the shadows." It would not be appropriate for them to be able to staff up to face all the different sort of risks and issues that could come their way. That leaves a skill and a resource gap and drives a huge consulting market of, if we just look at life and annuity alone, it's about GBP 1.5 billion per annum total addressable market. Obviously, if you add in the other insurance sectors into that, it's a much bigger market as well. That's really serviced by two groups of talent. One is the contractor market, and the second is traditional consultants. We feel there's a really unique opportunity for us to do things differently in this market in a different way.
At this point, I think it would probably be worth us inviting Roger up to talk around sort of Polaris so you understand Polaris's business model and how that sort of is uniquely serving sort of the market and how we plan as well to incorporate that into our wider XPS insurance consulting strategy.
Thank you, David. Good afternoon, everyone. My name is Roger Houlihan. I'm an actuary and insurance consultant, and it's a privilege to be here today to tell you about Polaris Actuaries and Consultants. Polaris Actuaries and Consultants was set up in 2015. Really, the idea of the business was to try to improve upon the delivery model to insurance firms out there in the market. As David alluded to, they were being served by two key resource pools, the contractor market and the established consultancy firms.
The contractor market was, or still is, it's a huge talent pool of individuals, many of whom have got very focused experience in particular or individual disciplines. The downside of it, it's very individualistic. People tend to be deployed on a person-by-person basis. You end up in a scenario where those individuals aren't necessarily coordinated in the most efficient way. The other alternative is the consultancy firms, the established consultancy firms. Whilst they will deliver a project in a coordinated manner, one of the downsides is, first of all, their high cost of service. There are also a number of operating model pressures, conflicts of interest, etc. The key thing is that they have a fixed resource pool.
Typically, a life consulting firm will have a body of 40 or 50 members of staff and can sometimes find themselves in a scenario when delivering a project, it's a case of a square peg and a round hole. What I did when I set up Polaris was sought to kind of rebalance that a little bit using the delivery approach of the consultancy firms, but utilizing the resource pool within the contractor market. That contractor market is about 700 strong in the U.K. When we won our first project in 2015, what I essentially did was assemble the individuals from the contractor market to resource the delivery team that was required for that project. Incidentally, our first project was quite a prestigious one, really. It was to deliver an internal model for a Solvency II internal model for a U.K. insurance client.
Now, the question is, did that work? How did the market take it? Very well, in fact. In some respects, I was pleasantly surprised. Insurance firms took note and word quickly spread such that within 10 years, we were working with most life insurance firms within the U.K. and had 12 U.K. insurance clients under our belt. We were regularly achieving revenues in the order of GBP 18 million per annum. Ultimately, at the time of the XPS transaction, we had projects with 55 consultants out on assignment, which is a number comparable with that of the established consulting firms. On this slide here, that just gives you a snapshot of our range of clients, the different firms we work with, a number of whom, as you can probably see, are operating in the pensions risk transfer space.
This is just to exemplify our model and how it worked for a project that we did about 12- 18 months ago. It was not our biggest project by any stretch of the imagination. In fact, it was probably one of our smallest. I think it exemplifies very well how we were able to tackle a challenge, assemble a crack team, and deliver an outcome, a really valuable outcome for our clients. Essentially, the insurance firm approached us. They were, on a sort of projected basis, having some concerns about the ability to pay dividends to their parent entity and wanted us to look at some of the complex underlying capital calculations and management actions within that basis. Part of the challenge was that they had already worked with other consultants. They had spoken with reinsurance companies and banks to investigate this particular issue.
Indeed, I remember in some of our early discussions before we started the work, there was some degree of cynicism as to how a firm like Polaris could possibly do any better than they had done. In any case, we responded quite quickly. We assembled a crack team. The team was relatively small. It was a former Chief Investment Officer, a former Director of a capital from a major insurance group, and a former senior regulator. It was a very tightly knit team that was perfectly selected to solve that problem, solve that issue. In a relatively short space of time, we identified GBP 450 million of capital savings for that business, which were essentially management actions that that business could then take forward in order to resolve the problem that it faced. Where are we today?
I could have carried on with Polaris, but actually, I recognized that the business needed investment. It needed investment to grow and scale the business and continue our growth journey. XPS, we've been approached by a number of different firms. Actually, with XPS, the thing that was most attractive was that speaking to David, to Paul, and to Ben, I could really see that they understood the industry and they understood our business and valued our business and what we had done to date. Coupled with that, actually, just practically the fact that it's a FTSE 250 firm meant that I knew that there were a number of firms we were already doing some work with that we could really grow out in.
In particular, some of the bigger firms we were working with, like Aviva and L&G, and there was really the chance for us to grow to the next level within those firms. The other thing was actually that the technology platform and the pensions experience and the risk transfer, because that's where the insurance market is going to be for the next 10- 15 years and where all the growth opportunities were. It was a natural choice and a natural synergy. I'm really pleased that we made the decision that we did joining XPS Group. In fact, over the last 10 weeks, the integration with the business has been going very well. More importantly, actually, it's given us a great opportunity to go out and talk to our clients.
Even this week, I'm working on five different proposals that have been an outcome of those meetings. Clearly, there's a great opportunity there and very excited about the future. I'll pass back to David to show where we are today.
Yeah, thanks. The U.K. insurance industry is very small, and you come across kind of like people from a previous life many, many times. Roger and I actually used to work together when we were at sort of KPMG. It's great to be working with Roger again now. Let's fast forward and talk around where we are today. I think we've made some really good progress.
Firstly, we've been building out our leadership team, and we now have 11 sort of partner managing consultants that are dedicated to insurance consultants and can really get out there and win in the market and sell our message. That team is operating across six different disciplines. Polaris has obviously accelerated our growth in actuarial and some of the finance and regulatory kind of like change. We are now building out capabilities across reporting intelligence, data and technology, and pension risk transfer solutions, which we had in spades at XPS anyway.
That is all supported by what we consider to be our sort of dream team, where we can leverage both internal expertise, which we have in abundance, the data and technology expertise, which we have in abundance, but we can mirror that up with any external kind of expertise that we need to make sure that we are bringing the right teams to our clients at the right time. Where does that put us? We are serving already 14 insurance clients in the market. If you add Polaris's revenue plus the existing services that XPS was already doing for insurance, we are well over GBP 20 million per annum business. It is a hugely credible platform to build off. I am delighted about the progress that we have made to date and how we are building momentum. Let us talk about the future now and why we are excited about it.
We have great propositions. As I said at the start, there is a huge amount of change that the insurers are dealing with. We can bring the technology-led solutions that really address that. That is the equivalent of Radar for insurers to help them manage their business more effectively. It is the equivalent of Aurora Services on the administration side that can help them migrate these businesses in and integrate into their operations at scale much more efficiently than they do today. Second, we have a great team. We have been really successful in our recruitment approach, and I have been delighted that we have been able to get the best talent to support, execute this strategy. I am delighted that we have been able to pull Roger and his team from Polaris through, but we have the ability to draw on our wider XPS talent pool as well.
Maybe to put it into perspective, you've heard from Roger how fantastic he's done in terms of the growth of his business. We now have a sales force three to four times bigger than what Roger had in his journey to grow that business focused on the insurance market. We're hugely excited about what that means. Finally, I think we've got a better value proposition than our competitors. We're outcomes focused, and we're much more attractive and competitive in terms of our rate structures and our agility to service our clients. To bring this back to the start, as I said at the start, I looked at the U.K. insurance market, and I saw that it was being underserved by the current providers of today. I hope through this presentation, you can see how we're trying to do things differently than what exists today.
We're trying to bring new solutions to our clients. We've already made a lot of progress, but we're really excited about the road ahead. Thank you for that. If there's any questions, we've got time for questions.
Yeah.
Thank you both for the presentation. If I can just maybe ask about longer-term aspirations, the pensions businesses create the position as the leading independent with a strong market share. Do you guys think about how you might evolve the insurance consulting business? And if you have any targets or aspirations in terms of market share that you could share?
Yeah, I'm happy to take that. In terms of target, I don't want to sort of put a number out there, and you guys should hold me to that.
What I'll say in terms of how we're expecting to grow, we've got 14 clients at the moment, but we can grow those clients in terms of the stakeholders that we serve across them. There's a huge opportunity for us to more deeply serve those clients across a number of different disciplines. Two, we're hugely excited about the ability to grow into other sectors. Already, the Polaris team is serving a GI and a health insurance client, and we've got the ability now to push into that market. As you saw on the sort of the iceberg, it's a GBP 1.5 billion life and annuity market. It's a much bigger market if you add those segments in as well. They're the two main areas that we see big growth potential.
All right. It's Robin Savage from Zeus.
You mentioned in your talk about the conflicts that your competitors, especially the bigger ones, have. I guess it's quite interesting to see that you seem to have commercial relationships with all the buyers of the buyouts. I just wonder, can you talk about, and maybe seeing your team talk about the way in which XPS deals with conflicts of interest within their business and the way in which maybe the firm thinks about the way in which their 600 schemes think about the way in which buyouts are being thought about, transacted, and the way in which you then are able to deal with the other clients of your firm who happen to be on your side.
Yeah, because it's a group-wide question. I might take that. I don't know if you can hear me. Yes, of course you can.
Yeah, there's very, very few conflicts here because the team that Steve and Jo are from are doing whole-of-market advice, find an insurer for their clients. They're in a very, very different bit of the business to over here. What we're doing here is helping an Aviva or a Phoenix to be operationally efficient when they win a transaction. There is no sense at all that we have a preference that Aviva might win a deal or might not. It's a completely different team, a completely different bit of the business doing those different things. At the very top, the understanding of what's going on, the development of skills to do all of the kind of work that these guys are talking about, the insurers need to do that kind of work.
If you have people that you can deploy to either one, whether a pension scheme client or insurer, you are going to do really, really well. There really is not a concept that there is a conflict that we would favor Aviva in a transaction because we might be going for some extra work from them. It truly does not work like that. Very, very different bits of the business. I should also say, I mean, I think I have said enough, really. There just are not those conflicts. I cannot expand any more than that, really.
Yeah.
Thank you for the presentation. My name is Jamila. I wanted to ask about the 12 clients that you listed as part of Polaris clients.
Can you talk about how long, on average, the work you do with them is for and how repeatable is the nature of the work that you do for these insurance companies?
Yeah. So it varies by client. I would say our longest engagement was about three years, and our shortest engagement was about six weeks. It's a simple fact. That's my parking. Yeah, it just simply varies. In terms of repeatability, what tends to happen, especially within insurance, it's very relationship-driven. If I was to characterize it, at any one point in time, one of our clients or that same client will have a need. Sometimes it can be a large regulatory change project. Sometimes it can be a requirement just for some support in a small area with a couple of resources.
Ensuring those relationships are in place, regular communication allows that repeatability of the business to be successful and to maintain the revenue stream from those clients.
May I ask? It sounds like the business model for Polaris is very flexible. Can you also talk about if there was an opportunity where regulatory changes came in and insurance needed significant resource, how fast would you be able to get people on that sort of work?
I mean, that's an area actually where we excel. I'll pick on a particular example. There was one of the largest insurance clients in the U.K. facing into IFRS 17, and for one reason or another, the mobilization process it was procuring was quite slow. It was quite delayed.
They turned around to us quite late on in the process, where actually a lot of the demand, or a lot of the, sorry, a lot of the supply in the market from other consultancies had sort of run out. They needed a team of 25 consultants to support them on that project, on that program. I distinctly remember it was about two weeks before Christmas, and we had gone to them with that proposal before Christmas within a week or so. The team of 25 were there in front of them. They gave the green light, and we started work in January. It is something we are able to respond to very quickly. I think that is in part due to the size of the resource pool that we are working from. I mentioned some of our competitors have a bench of maybe 40 or 50.
We're ultimately working from a bench of 700.
Finally, just how unique is this sort of business model in the market? Is anyone else besides Polaris sort of leveraging this?
It's a good question because I think I'm not aware of anyone else in the market having done it. I think given our success, I'm surprised nobody's tried to copy it. Yeah, it's fairly unique in the market and has been quite successful, and we've built a name for ourselves. Take one more, and then we might go to Generals.
Thank you. Hi. Sorry, I didn't say before, Georgina Brittain from JPMorgan. I've just got a question on price here. I think you quite proudly said that you're cheaper than your competition. Why? Do you need to be?
I think what we need to be is we need to be much more focused on the outcomes for our clients. If they see outcomes from our work, they're willing to sort of pay the right price for that. Obviously, when we're growing sort of our market share there, we need to be competitive, and we will be competitive. We're much more interested in actually sort of getting to kind of outcomes-based sort of pricing, shared incentives with our clients as our ultimate sort of strategy.
I think it's fair to say we've got good margin straight away as well because the cost of delivery is also a little bit cheaper. Another benefit of the model, of course, is you only incur the cost when you've got the revenue on the contractor side. If you don't win a big project, you don't hire lots of contractors.
Actually, it's a very safe way of growing the business into that. We will transition a little bit. More and more, we will resource projects from XPS resource too. As Roger expressed beautifully, we've got 700, which is incredible. We've actually also got all the XPS people too. I know some of the proposals have been a joy to work on. We won a piece of work just a week or so ago where we're sending in six people, and it's three Polaris contractors, legacy history, and three XPS lifers. That's fantastic. Again, to our people, that story about their wider career opportunities has been a really, really important part of all of this, and it's been enormously welcomed. Great opportunities to move forward. The margin's already healthy.
Actually, I think in a few years' time, your pricing opportunity is quite real. Volume first, price second is probably a more sensible way to try to go, I think. Yeah.
Absolutely. Thank you.
If I might just say thank you very much, James. That was great. I just want to say a couple of remarks before we then go into any wider XPS questions. I mean, I hope you've got a sense from today that there's a lot of momentum in the business and has been for some years. The question that we sort of frequently, and I think quite rightly get, is, can the momentum continue because you've been on such a good run? I think you heard today that there's a huge amount going on. Great technology we've got enables us to keep winning market share.
There are plenty of new opportunities, whether it's Radar, whether it's Aurora, to go out and win in the traditional sense, just more actuarial, more administration clients, which we absolutely are going for. In terms of what's going on in the wider world, I think we heard about risk transfer, and we have only just started. I mean, as Steve was saying, if you've got a three, four, five-year project, the projects we're doing that are earning us that GBP 15 million of revenue are kind of two, three years into that, and then you've got a whole rolling load coming behind. You see how that kind of continual pipeline is just growing, and we have years and years and years of that work.
Now, we think a lot of our smaller clients will go that way, and that will be a huge kind of opportunity, a bit of a bonanza for us. Lots of the bigger clients, who are the ones that actually typically pay more fees for ongoing kind of work, an awful lot of them are very interested in this run-on idea. That is a whole industry and an opportunity to differentiate yourself as well. Huge opportunities in that core business, as you can hear, and a visibility of opportunity therefore to keep growing for quite a few years into the future, which we are determined to seize.
At the same time, if we're investing in this capability in insurance, where to us it's just kind of obvious, the insurers need masses of what we're able to provide, and we've got a fantastic team up against a backdrop again of some competitors under some pressure. The big four accounting firms are not finding life very easy at the moment, and it's mainly them that are in our crosshairs at the moment for some of these opportunities. What a brilliant opportunity for wider growth into this tangential space. That's why, of course, we drop pensions from our name. We're not XPS Pensions Group. We're XPS Group because we can sit at the boardroom table at somewhere like Phoenix or Aviva and talk about that broader capability to deliver what they need with our heritage in pensions for sure.
In five years and ten years' time, I think we'll have grown some very, very big beast businesses alongside all of that out of some of the profits that we've made along the way as we've reinvested to become that wider firm. I think it's really compelling what the guys here are talking about. It's been a great first few weeks since we acquired Polaris. I say David's slide's amazing. There are 11 partners and MCs. Last October, that slide was blank. As usual, we're charging. We're going quite fast. Lots of stuff. You may have questions on all sorts to do with that. We've got all the presenters, of course, still here. As I say, we've got an hour's worth of drinks and canapés outside. Equally, what a great opportunity to ask us anything you would like about wider XPS.
Perhaps if Snehal and Ben come and join me, it's an opportunity to take any questions on anything at all. I can see multiple ones. I can see Steve, I think you just pipped there as a first question if you wanted to lead us off.
Thanks very much. Steve Woolf from Deutsche Bank. Just with everything we've heard today of the opportunities you've got, you've also got, obviously, a very strong balance sheet even post Polaris. What's your feeling now about either side of the market, whether it is, I think, people within risk transfer, whether it is another Polaris, whether it is consolidation on the mid-cap effectively in the traditional pensions? Where do you see the most exciting growth, and how would you think about backing it?
If I take that one really briefly.
Yeah, embedding Polaris and maximizing opportunities from it, getting the team really integrated into XPS and knowing their way around our firm, just as we know our way around their clients, is clearly a very big priority post a transaction. When we look at deals, we tend to appraise them as, do they fill a skills gap or take us somewhere new? If they're bolt-ons, we can do them from cash. We have a very strong balance sheet, as you say. Opportunities like that are very welcome. They're more likely to be boosting the capability into insurance, wider insurance, general insurance technology around that, probably than they are likely to be in our more traditional heartland of pensions. That is because our capability in pensions is really, really strong. We definitely do not want to sound complacent or arrogant.
We are not top of market share across all these things, but we are top of market capability now across everything that's needed in pensions. Steve and the team and so on are doing amazingly well. There is little to gain, we think, from buying something more in pensions. We will not gain capability. We would only gain scale, and we would rather gain that organically, probably. It is true that there is much further to go into the broader arena of wider financial services consulting into general insurance, even into other institutions beyond all of that. That might be the more likely inorganic path. I would not hold your breath because obviously, although I say we are charging, we certainly are. When you have done a deal, let us consolidate that, make that work brilliantly, draw a bit of breath. That is perhaps where we are headed in the end.
Thanks.
Thank you.
Portia from Cannacord. I've got two questions about risk transfer, please. Firstly, just wanted to understand the capacity within your current teams for the immediate opportunity that you have ahead. Any comments on hiring plans would be really helpful. Also, previously, you've talked about risk transfer being higher margin work compared to some of your other work streams. Just wanted to understand what drives that margin and how robust you think it is as the industry continues to mature and perhaps competition increases.
Yeah. In terms of capacity, I guess you need different types of capacity to grow. You need people with a lot of experience to kind of lead the transactions, and particularly for bigger ones, that's particularly important. You're seeing a lot of people in the engineering to do all of the work that Jo and Steve have been through.
The industry's got a capacity issue at the high level. It's very hard for people to get lots of experience on big deals very, very quickly. We'd like to hire more in the outside world, and we're creating more people ourselves, but that is a general industry challenge. Bringing people further down to help with the engineering, that's much easier, and we can easily move people from other parts of XPS to support that. There probably is a slight imbalance between creating the capacity. We definitely think we'll be growing. If we could require more senior people with great experience, thank you, then that would help us, and we'd like to do that. It won't stop us growing, though. It just might mean we are a little bit more constrained in record in sort of very high levels of growth.
In terms of your question about margin, the charge out rates are typically, and this is an industry point, are higher generally for projects in general. It is not just risk transfer. Generally, certain projects attract higher charge out rates, and typically, you might get higher recoveries as well. In effect, you do charge more for those per hour. People are often a bit more expensive, but in the middle, the margin is generally a little bit higher. One of the reasons you have seen our margin tick up slightly over the years is the fact that we have become a slightly higher proportion of projects versus sort of ongoing compliance work. In terms of the sustainable, I think our business will keep moving to more projects just for a number of reasons. More risk transfer means more projects. Plus, we are winning more projects externally as well.
I think that mix will continue. In terms of whether that margin will be slightly different for commodity work and projects, I think that'll remain the same as well because there's a much bigger demand for them. I think those dynamics will probably remain going forward as they do today.
I can see any comment I'd add is the value add is massive, and that's why projects often deliver a higher margin. I mean, what Steve and Jo do, they were modest, but they've got stories galore of where a client's ended up with GBP 20 million, GBP 30 million, GBP 50 million more at the end of a really well-run transaction than they would have got if they'd taken what looked like the best and final. That value add, particularly in that transaction phase, is huge. That is very real.
Half of that, maybe even all of that, might ultimately belong to the members of that pension scheme then. That is a big old chunk of money to spend on them. The value add's massive, but that is why you can justify a good fee. Sometimes you guys have even worked on discretionary fees at the end and bonuses and so on, just like a good M&A deal. If you do something absolutely brilliant and the client is delighted with you, then you can share in that success. That, again, drives good margin for us in that part of the business. Real value add stuff there. Very happy clients to pay premium rates for ultimately what they get because the value's really clear.
David Beck, RBC Capital Markets.
Going back to Radar, I appreciate what you have done so far with it, but when can we expect it to start contributing more materially into winning new business in actuarial consulting as there have not been that many wins in recent years? Second, could you perhaps share some color on how has the business performed in the first few weeks of the new financial years as historically the market of volatility has been positive for consulting business revenues? Thank you.
Can I answer two first? The second one, I think that we're going to be presenting our financial results in June. As you can appreciate, after the year end, we're in a bit of a close period. We will say more about it in June, if that's okay. On Radar, Radar's contributed a lot to growth because it, as Alan was describing, drives projects.
What Radar is sometimes analogous to is you've got an architect that can show you a beautiful 3D plan of the big extension to your home. And if it looks wonderful, you're just, "Okay, fine. Let's go for this." Some flat, boring piece of paper that's a plan that you can't make head and a tail of, maybe you're less likely to. It demonstrates value to clients, but it's a little bit what it does then is stimulate the activity. When the client wants to actually do the project, it isn't just move a little slider on here and we've got a new investment strategy. Back at the office, that's tens, even hundreds of thousands of GBP worth of work to ultimately implement a better long-term investment strategy and so on. It has been a key contributor to our growth over the years.
It's helped us with new business a very great deal. The pitches that we've won out of the big three, Radar is always front and center when they happen. To your question about how many we've won, the market has been harder in recent years on the ongoing kind of compliance schematry work and more project work instead has been where the opportunity's been. We think in part for bandwidth issues where so much has happened. For example, you're going through the Liz Truss mini budget and funding's all up in the air. It's not a great time to say, "Well, we'll throw out all the advisors and all the history at the same time on the longer term." That probably caused a little bit of a contraction in that pipeline. I mean, our results have absolutely flown in any case.
Where we have won clients, they tend to be quite large ones and continue to then make that contribution. Yeah, I cannot deny we would like to see more schematry appointments pop up, and we would like to win more of those when they do. I think we have actually just started to see some green shoots on that. Our pipeline of opportunities right now on really big schematry appointments is probably better than it has been for about five years. Just maybe we are getting out the far side and people are really interested in that.
Sorry, just to add one point, which is one thing that Radar has been successful in is helping us convert actuarial clients to investment as clients as well.
Because if you can imagine actuaries going along and using Radar, it's quite easy for them to start talking a little bit about some of the investment changes that could be made and the positive impact on risk and return. If you take an investment colleague along, you're starting to do the job of the investment consultant. Actually, we have seen quite a lot of actuarial clients turn into investment clients over that period.
Thank you for taking my question. It's about revenue growth. I sort of hear everything that you've said today, talking about the pipeline that you have, the market share opportunities that you've got in various areas, the sort of more nascent parts of the business compared to the established pensions business. I look at your sort of past three years when you've generated very strong revenue growth.
Roughly, I think, if I calculate correctly, correct me if I'm wrong, Snehal, about 10% underlying growth before inflation per annum over the last three years. What do you think you can achieve organically over the next three years, average per annum?
It's a very fair question. We think we can continue to grow. Inflation has been a wind in the sails, and market dynamics have been the wind in the sails. We are very optimistic we have continued very healthy growth from here. Consensus figures are of the order of sort of high single digits. We are comfortable with where consensus is. I think you can see today, we think there continues to be some quite big opportunities. To briefly unpack them, we will expect to keep passing on inflation. In some cases, we may do a little bit better than inflation in passing price onto clients.
Inflation is clearly a lot lower, but it's not zero. So there's an element of growth from that. Of course, that grows everything, but cost base plus revenue plus profit are all likely on a base to grow like that. But as you've heard, the risk transfer market, that's growing significantly, the onboarding of new administration clients like John Lewis, which we're only going to get a full year effect of this year and so on, our biggest administration client. Post McCloud, albeit that was one-off, that's an administration, this huge rectification project. We're the only administration firm that hit McCloud. We made it. 31 March this year was the deadline in the public sector to tell affected people, the many millions of affected people around the country, what that meant for them. We look after more than half the police forces, and we did it. We made it.
Every single police member, where it was within our gift and the data was okay, to get a statement, got one. No other administration in police did that. No other administration in wider public sector did that. Most have got a ripcord and asked for two more years. Our star is high. That is why I tell you that. We maybe could have had half an hour all about that, but we will tell you that about the roadshows, right? We will tell you how we did that. Boy, does that create opportunities because in public sector admin, everybody else has failed and we have not. Our opportunity to be out there talking about McCloud or just wider public sector admin opportunities is very significant. You heard about the insurance opportunity and the growth. We had a blank sheet of paper in October.
Yes, XPS did some revenue for insurers, but that was kind of on the side of the desk of pensions people. David was a very senior hire. Look at all the other people we've brought in and the opportunity to grow with Polaris. You add these things up, yes, we're very ambitious about what the long-term future of XPS looks like. Some of them will take time to deliver on investment. Some of them are quite real now. Yeah, we've got a tough comparator for last year as well because we had quite a bit of one-off McCloud that won't come back. Overall, with consensus where it is for all the factors I've described, we're pretty comfortable with that. We are being quite careful to make sure people don't think we're going to compound at 20% a year forever like we have been the last few years.
Remain calm about that, but a long-term healthy growth story for us is very, very realistic and very achievable.
Thank you for taking my question. Afraid here from Federated Hermes. I have two questions. The first one is about risk transfer. I wonder which paths, run-on or buyouts, would benefit you more. Presumably, it is not only about profit, but also about maintaining long-term plan relationship. If the answer is run-on, would that limit the opportunities open to insurers? The second question is about insurance. As we know, and also as you have shown in the chart, the supply in the insurance space is going higher. The space is getting more crowded. Will the pricing pressure drop through to your insurance consultancy business as well? Thank you.
Okay. The first question was around, do we have a preference about which way clients go?
For a business like ours, the answer is you give the clients the absolute best advice, okay? It is their decision. It is our job to educate them, provide them with all of the information they need, and be completely objective. That is our plan, okay? We do not care which way they go. We want them to feel that they have gone the right way for them based on brilliant advice. We will then have a brilliant service to help them whichever way that they go, okay? I guess a lot of big clients will go down run-on, and the vast majority of small schemes will go down the buyout route. As Helen alluded to, a scheme that is now just disproportionate to the size of the business, that will probably go to buyout, and there will be small schemes that run-on for individual reasons.
We do not have a preference. We want to be brilliant at helping clients and brilliant either way. That is what success will be because then we will win clients on the basis of giving them the best advice and the best implementation. We are completely neutral. Second question.
Yeah, to insurers and cost pressures that they have themselves or margin pressures because of pressure in the bulk annuity market specifically. Actually, the new entrants are just really healthy for us. A great example, when we were thinking about our future strategy and investing in insurance, if you go back about 18 months, we had a new entrant into the bulk annuity market, which is Brookfield, but trading as Blue Mont, of course, today now in the U.K.
Very big North American organization with a big balance sheet to come and try and invest into the U.K. insurance market. They approached us and said, "We'd like help. We've got no U.K. infrastructure. We don't have an insurance license. Don't have anything, but we've got an idea." They gave us a list of kind of 10 services of things that they needed. They said to us things like, "When we write business, we're going to need somebody to do all the administration, pay all the pensions, keep all the records. Can you do that?" Yes, that's what we do for pension schemes. We can absolutely do that for you. Actually, following a competitive process, we got that appointment. Currently empty because they haven't written a new business yet.
There is a client that if they write billions of business in the next few years, we will have a lot of administration business. They went further, though, and started saying, "What about financial reporting? What about our negotiations with our regulator, the PRA, for capital we need to hold?" That is when we had to say, "No, actually, we understand that stuff, but we do not do it. We cannot do it." That is where they might have turned to a KPMG or somebody like that to help them. That felt like a shame to us. We built capability to be able to answer that question, yes, the next time we were asked it. That is why we went on the path of hiring David and others, and of course, Polaris as well.
Actually, funnily enough, we're in quite a lot of conversations with people like Blue Mont right now because it takes a while for them to get all this going. They rather like us, and they're quite keen to talk to us. These expanded capabilities pay off quite quickly. Actually, that's the better thing about what's going on with new entrants to the market. They all need a lot of investment to get them there. Indeed, they're not the only one, are they? Atmost as well. We're also having some really fruitful conversations with them. That's good. In terms of the pressure on their business, I don't know. I don't think we see that directly. If anything, they need to release capital elsewhere. I would look to David or Roger to comment.
But somebody like Phoenix, if they can unlock all those savings that were being talked about, they'll actually have a bigger new business capability because their capital will be in a stronger position, a better balance sheet to be able to go and run the business. Actually, arguably, the kind of pressures that they're seeing drive more demand to make themselves more efficient and release capital and be able to do other stuff. I think it means more projects for these guys rather than us having to worry too much. I do not know if you guys would concur with that. Yeah, no, that's absolutely correct. I mean, a lot of the work that Polaris is a market behind you, wouldn't it?
Yep. Yeah, I would agree with what you said, Paul.
A lot of the work that we have been doing, Polaris has been doing, has been working with insurers on their capital to make that more efficient in order so that they can price more competitively. We have been in recent discussions with another insurer who's looking at the surplus and the with profits fund to fund some of their activities in that space as well. A lot of demand from insurers to Polaris, XPS Polaris, to support them in those sorts of areas and do things more efficiently so they can be more competitive.
Yeah. I'm glad our answers aligned. I thought they would after I'd given mine. Any other questions? There's one in the middle there, so I'm not sure who was first. Yes, the microphone's got there first. Thank you, Jim. We'll come to you in a second.
Oh, I thought I was going to ask you the final question, which was taking you back to the comment you made right at the beginning, which was you're looking at XPS to be the best provider of services. I just wonder whether you can provide some evidence because obviously, I know that you are the best because we're involved in the float. I know personally a few members, but you've got a million members. You've got 600 schemes. I'm sure I mentioned some while back, Net Promoter Score. Do you actually collect evidence, external surveyed evidence, and then follow up where people are perhaps not quite as happy as you thought they were to try and work out where you're not being the best that you could be?
Yeah, so we do a client survey every two years.
Clients can obviously contact at any time, but two years is the sort of frequency we do it. It is run by an external provider, so an external market research firm who does a lot of surveys for some of the businesses. Their feedback, the results are absolutely fantastic. Twofold. Firstly, the actual level of satisfaction, but secondly, the stability. Over the last six years, the results have basically not changed through a pandemic, broadly doubling in size. Stability is fantastic. In terms of comparison to others, one of the questions we ask is if you have experience of other providers, do you think XPS is better? Seven out of 10 of our clients said yes, and none of them said no. We have to work really hard, and nothing is ever perfect.
But working really hard to make sure we hear their feedback and address it is definitely part of the answer. Trustpilot is another source. So members, you do not have to ask them. They leave you feedback on Trustpilot. And our rating there is 4.6, which is excellent. I think the next best of our peers is below 3.5. Again, we fare well there, but we are only at 4.6. We are not at 5. There is always work to be done, but I generally do believe we are providing a great service and a really consistent service. As I say, kind of the ambition is to keep improving. Yeah, Robin is that unhappy clients vote with both of their feet. If you look at our churn, it is very, very low, and we do not lose clients to competition. Yeah. I think you had a question.
Yes.
I had a question around technology. Can you talk about how or do you expect the adoption of technology to be deflationary on your chargeout rates? The second one was mostly around everyone who has come up here has talked about how great the culture is at XPS. I wanted to sort of ask around how you've been able to create such a culture and how you expect to maintain that over the next year, a few years.
You can have the deflationary one, and I'll have the fun culture one.
Okay. I think the question is the technology becomes before will we see our prices go down. Look, I think there is a risk. Our model, a lot of the work we do is we charge by the hour. If we do things quicker because of technology, we could end up charging less.
The way the industry is actually going is more fixed fees. Clients prefer the certainty of a fixed fee for a defined scope of work. Generally, in the industry, it's pretty standard that contracts will put through an inflation measure on a fixed fee. The inflation measure changes depending on what our clients are focused on, but generally, that's the case. I think probably technology is a way of effectively doing a better service, which is Radar fundamentally, or Aurora will be better, and becoming more efficient, which should drive a higher margin. Over time, if all of our competitors or more of them really invest in technology, then yes, the market price for some of the services could fall. We aren't currently seeing our competitors throw lots of money at technology.
Generally, a lot of our competitors are part of much bigger businesses, and they are focused elsewhere. We are probably optimistic that fixed fees are a preference for clients, and they are a preference for us. That is the way that we can benefit through tech. We are new business on really competitive terms, and clients benefit there. We watch it, and we do look at it, but we do not have that as currently high on our risk register.
On culture, and if it is okay, we will make this a sort of closing comment, but then let us drink some can of ice. You have sat in a room for two hours listening to people talk about pensions. It is our trustee first. You deserve a drink. Culture is really, really important to us, yeah. Everybody says that, do they not? We try to really live it through actions.
There is all manner of things that we do, but communication is a bedrock to it. Ben and I do just in our 200th Friday Roundup every week, we just record a quick message for five minutes about everything that's going on in our firm, and we send it to everybody in the firm and just tell them what's going on, whether it's new business wins, whether it's market changes, regulatory changes, whatever it is, and quite often fun stuff occasionally, a cybersecurity reminder or whatever it might be. We go into great lengths to celebrate our culture, who we are, what we do. People are very clear about why we're here. We've got a really important societal purpose. We look after members of pension schemes and now members in insurance companies. They've got to get their pensions. Look at all the things that have gone wrong over the years.
We're the antidote to that. We are to make sure people are well protected and looked after. We then celebrate what we do. Only last week, I read all the entrants into what's called our Values in Practice Awards. Our VIP Awards are brilliant. It's where we celebrate the people in our firm who go that extra mile. They do incredible things, usually for each other as much as for clients. Great client work gets its own rewards. What about the way people just look out for one another, especially in an environment where there's so much pressure in the wider world, isn't there? It can be at work. Celebrating those VIP Awards is something we've been doing for five years now. When we go to the Professional Pensions Awards next month, our table won't be full of our executives.
It will be full of our VIP Award winners, some of whom have never been on a big night out like that. They might be a junior administrator up in Scotland, but they are our firm. If we win those big awards next month, it will be them going up to get them rather than necessarily me or Ben or Snehal, etc. Celebrating success really matters as well. I would say one final comment on that. We could list 100 things that we have done over the years. We have been very proud of having just made the FTSE 250 and just closed a really, really strong year. We celebrated that with our people by giving everybody in the firm a voucher, a sort of Red Letter Day voucher, which we just sort of dropped on the 31st of March.
It is appropriately for GBP 250 to go and spend with family, friends, loved ones. We are very proud to do that. We appreciate that is a little bit of extra cost for the business. We have done a few things like this over the years, and they massively drive engagement, loyalty, etc. The stories we have had of people taking out loved ones or organizing team events where they are going and spending it together, jumping out of aeroplanes or fast cars or spa days, the best one we have had, somebody got engaged last week when they were spending their GBP 250 voucher. We hope that that was a well-planned, well-thought-through rather than just excitement at the moment. There is lovely stuff, and we celebrate a lot at XPS when things are going well, and we look after each other really well. In the end, that shows up.
We truly believe what we've done the last five years is built on that, arguably more than anything. We keep going with all of that. That seems like a nice note to finish on. Thank you so much for your questions and engagement today. You're well done for making it all the way through. There is a rewarding glass of wine or cold soft drink waiting outside, and we're all still here. We'd love to talk to you and take any further questions or feedback, etc., that you've got. In the meantime, thanks very much for coming. Thank you for everyone attending online.
Thank you, everybody. Also, thank you to our blinking amazing team. God. Thank DB Numis for hosting. What a great venue. They've been brilliant in making sure there's a team of people back up there in that room.
You've been amazing looking after us. Thank you to our amazing team who've put on the event as well. Huge amount of effort and work goes into it. Thank you to all you guys. Amazing presentations. Thank you for coming. Let's go and have a drink.