The Philips Pension Fund has secured a second buy-in deal in 12 months, insuring £300 million with Prudential.
It follows the fund’s £484 million buy-in completed in August last year, insured by Rothesay Life.
The latest buy-in covers the liabilities of 1,800 pensioners and was aimed at “managing investment, longevity and other risks”, advisers LCP said in a statement. LCP have advised the Philips Pension Fund on both deals.
“[Philips] is one of the ‘go to’ pension schemes for an insurer looking to transact when they have attractive pricing opportunities available.”—Myles Pink, principal at LCP.Prudential’s Executive Director of UK & Offshore Tulsi Naidu said the insurer was actively seeking pension funds “opting for large annuity buy-ins as their de-risking route of choice”.
Myles Pink, principal at LCP, said the fact that the Philips pension was able to act quickly to secure the transaction meant “it is one of the ‘go to’ pension schemes for an insurer looking to transact when they have attractive pricing opportunities available”.
The transaction is the latest in a series of de-risking deals struck this year, by far the largest of which was BT’s £16 billion longevity swap transaction with Prudential Insurance Company of America. Total’s UK pension scheme secured the second-largest buy-in recorded in the UK, insuring £1.6 billion with Pension Insurance Corporation last month. This year has also seen the UK’s largest deal, with Legal & General and Prudential sharing the £3.6 billion buyout of chemical company AkzoNobel’s ICI Pension Fund.
Emma Watkins, partner at LCP, told Chief Investment Officer that schemes engaging in multiple buy-in deals sometimes choose to re-tender for different tranches to take advantage of cost benefits.
“Clearly where the new liabilities or membership tranche is larger there may be a genuine cost benefit to running a competitive tender process,” she said.
“In this case the trustees and adviser would run a full process and it is quite possible that an insurer other than the incumbent will provide a more competitive price—perhaps they can offer more competitive terms for the new demographic of this population, or have just secured a risk-adjusted high yielding asset. However, it is likely that there will be a cost associated with negotiating new commercial terms with a new provider, which will likely set the margin needed for the ‘winning’ insurer.”
Watkins added that the trustees may also have sought diversification of covenant risk, or to ensure competition for future de-risking deals.
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