Commerzbank has de-risked its Dresdner Kleinwort Pension Plan after it concluded a pension insurance full buy-in with Pension Insurance Corp., which will insure £1.2 billion ($1.6 billion) of pension liabilities.
Although the buy-in covers the whole plan, it is divided into two transactions for the two sections in the plan: a £900 million final salary section, and a £300 million money purchase section.
The transaction allowed members in the money purchase section with hybrid defined contribution (DC) and defined benefit (DB) benefits to choose to transfer their benefits to an alternative arrangement, or to convert them into pure DB benefits. The DB benefits were then insured under the terms of the buy-in.
“Given the unusual hybrid DC and DB benefit structure, the trustees required flexibility from us to ensure that both sections of the plan were insured in line with their requirements,” said Uzma Nazir, PIC’s head of origination structuring, in a release, adding that the deal is “the biggest transaction of the year so far and one of the largest to date.”
The pension plan became part of Commerzbank AG following its acquisition of Dresdner Bank in 2009.
According to consulting firm Mercer, 2018 was a record year for premiums paid to insurers for buy-ins and buy-outs, with more than £20 billion of DB obligations being insured. The firm said it expects the market to grow again in 2019, and remain strong for the foreseeable future.
The firm forecasts that more than £300 billion will be paid by UK private sector DB plans from 2019 through 2021.
“Affordability of buy-ins and buy-outs has improved significantly in the past year,” said Nazir, and “this is driving a record number of schemes and companies seeking to insure in full.”