UK Regulator Takes Tougher Stance on Pension Corporation

The FSA has probed the specialist insurer and pension buyout firm to explain its investment strategy. 

(April 26, 2010) — The UK Financial Services Authority (FSA) has demanded the Pension Corporation explain its investments, expressing concerns about the investments the corporation was making for policyholders.

Increasingly, trustees of company pensions seek to reduce risks in their schemes by offloading the responsibilities and balance sheet liabilities of company pension funds. The FSA’s demands reflect a stricter approach toward insurance companies, particularly for newer businesses acting as consolidators.

“The insurance market got through the recession in better shape than the banks, but there were some close calls behind the scenes,” said a source to The Independent. “The regulator is focusing hard on the sector, in particular those newer businesses in the buyout world.”

The regulator’s demands came in the form of a letter to the Pension Insurance Corporation (PIC), the parent company of Edmund Truell’s specialist insurer, which manages about £3.3 billion worth of assets managed for 45,000 pension holders, The Independent reported on Sunday, adding that the PIC has since addressed the issues highlighted.

Since last year, the Pension Corporation, which posted a profit of more than £200 million in February, has been working to raise 600 million pounds ($942 million) in new funding as it looks to profit from the growing desire of UK companies to insure their pension liabilities. JPMorgan has taken the lead with coordinating the capital-raising.

In other news, while insurance funds have traditionally chased more conservative investments by mainly relying on fixed income and cash, the Pension Corporation revealed plans earlier this month to increase its exposure to risker assets, including real estate and hedge funds. Chief Financial Officer Rob Sewell told Reuters that the specialist insurer could invest up to £100 million in its first allocation to property. According to the news service, Pension Corporation now has around a 10% allocation to hedge funds and private equity.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href=''></a>; 646-308-2742