(October 2, 2013) — Rothesay Life has completed its second bulk annuity transaction in a month, securing £484 million worth of liabilities for the UK Philips Pension Fund.
The transaction saw gilts and cash held by the pension fund swapped for an insurance policy that will provide benefits for pensioners in payment and their contingent beneficiaries.
This is the second deal announced inside a month for Rothesay, which secured a £440 million transaction—this time for a portion of the active members—for the InterContinental Hotel Group in September.
Rothesay Life has been one of the most active players in the market when it comes to mid-market level pension risk transfers, but it has also dealt some of the market’s smallest and largest transactions.
Its deals have ranged from a £60 million buy-in deal for Radius Systems in April 2011 to a £1.3 billion longevity swap with the British Airways APS Scheme in December 2011.
Clive Wellsteed, partner at consultants LCP and adviser to the pension fund trustee, said the key challenge was helping the trustees to understand which parts of the total £3.5 billion liabilities provided best value for the risk reduction to be achieved.
Transactions for pension risk transfers in the UK have now exceeded £5 billion, overtaking the £4.4 billion worth of deals achieved in 2012.
Ian Aley, a de-risking expert at Towers Watson, said the recent improvement in bulk annuity pricing had resulted in more pension schemes taking advantage of the favourable investment conditions.
“We have every indication to believe this is still the case as pricing remains attractive. Many funds now have set market triggers and are monitoring the market to complete transactions when the cost and risk conditions are favourable,” he said.
“Schemes with gilt investments are still taking the opportunity to exchange these for an annuity that provides a better match for their liabilities for little or no cost and the rise in the equity market has meant that buyouts might be within reaching distance for many schemes.”
Aley went on to predict that the buyout and buy-in run was far from over, and that he expected £6 billion to be transacted by the end of 2013.
Rothesay Life has recently been put up for sale by its owner Goldman Sachs. Last month, press reports suggested two-thirds of the insurer had been agreed to be bought by three companies: Blackstone, GIC, and Mass Mutual. The acquisitions are yet to be confirmed by any party.
It is expected, however, that further pension risk transfer deals will be announced by Rothesay Life before the end of 2013.
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