MassMutual gets into pension risk transfer with investment in Rothesay Life

One of the largest mutual life insurers in the U.S. has shown its interest in the UK pension risk transfer and de-risking market by investing in one of the leading players in that sector in the last week. Massachusetts Mutual Life Insurance Company, or MassMutual for short, has made an investment in leading UK pension risk transfer specialist life insurer, and wholly owned subsidiary of Goldman Sachs, Rothesay Life.

The investment has been made through a subordinated debt offering, which saw Rothesay Life issue £100m of perpetual subordinated notes which MassMutual duly purchased. The debt issued in the deal replaces existing debt that Rothesay Life had and pays a regular coupon to the holder until the issuer chooses to repay it or the holder chooses to arrange to mature the notes or sell them. In this way it acts like a shareholding paying a regular dividend, but for Rothesay Life owner Goldman Sachs, it means they remain Rothesay Lifes sole shareholder.

Addy Loudiadis, CEO, Rothesay Life, commented; “We are delighted that MassMutual, a major US financial institution, is making a £100m debt investment in Rothesay Life. This investment represents a significant vote of confidence in Rothesay Life’s business, in particular, on our rigorous risk management.”

M. Timothy Corbett, Executive Vice President and Chief Investment Officer at MassMutual, added; “As part of MassMutual’s investment strategy, we seek to generate competitive long-term results for our policyowners. Demand for risk management from UK defined benefit pension schemes offers significant growth opportunities, and our investment in Rothesay Life supports our view that the company is well-positioned to capitalise on this opportunity.”

It’s an interesting deal as it sees MassMutual take an interest in the returns which are possible from pension risk transfer and annuity deals, while for Rothesay Life it secures a £100m injection of capital which it can be put to work in upcoming transactions allowing it to assume more pension and longevity risks. It shows the attraction that the sector and its potential return has, enough to encourage a U.S. mutual insurer to get involved in the UK market.

Rothesay Life wrote over £1 billion of new bulk annuity business in 2012 and has now written more than £10 billion of business in total, more than any other dedicated insurer of its kind. Rothesay Life said that it has a healthy pipeline of new transaction opportunities which it expects to turn into a robust flow of new business throughout 2013.