Rothesay Life insures £280m of pension plan risk including longevity

Rothesay Life, a leading UK pension risk transfer specialist life insurer which owner Goldman Sachs intends to sell a majority stake in, has completed another pension risk transfer transaction. The £280m bulk annuity transaction sees Rothesay Life take on more pension plan risk including covering longevity.

The transaction involves the pension plan of Cobham plc, a UK FTSE250 aerospace and defence business. Through the deal Rothesay Life is protection £280m of Cobham’s pension plan liabilities, with Cobham benefitting by getting a low risk annuity asset and also additional cover for pension longevity risk and pension increase risk.

It’s Rothesay Life’s tenth transaction of over a quarter of a million pounds in size. The firm takes on longevity risk from the majority of these deals and at some point we expect that businesses such as Rothesay, which provide pension risk transfer solutions, will need to find a way to effectively transfer longevity risks themselves through reinsurance or hedging.

With the market in pension risk transfer set to grow and demand for ways to offload the future risks of pension plans increasing a market in longevity risk becomes ever more essential. The insurers and reinsurers involved in pension risk transfer and reinsurance can only take on so much longevity risks themselves before a pipeline or liquid market to pass longevity risks along becomes a necessity when managing their own risks.

Addy Loudiadis, CEO, Rothesay Life, commented; “This is Rothesay Life’s tenth transaction worth over £250m and we are continuing to benefit from strong pension fund demand. The Cobham transaction further highlights Rothesay Life’s robust business model and strong execution capabilities. We provided Cobham and the Trustees with price certainty from when we were selected and then agreed contracts quickly.”

Simon Nicholls, Chief Financial Officer of Cobham added; “This transaction, which was prefaced in the Group’s 2012 financial statements and follows two smaller buy-in transactions on separate defined pension plans completed in 2011, represents a significant step towards de-risking the Group’s defined benefit pension plans using the Plan’s assets and adds further levels of security to the Plan’s obligations towards its members.”

Tom Seecharan, Deal Manager at KPMG who advised on the transaction said; “This transaction was made possible by close collaborative working between the Company and Trustees. We were delighted to help run an efficient and thorough process which allowed both parties to take advantage of the attractive terms available from Rothesay Life for the mutual benefit of the members, Trustees and sponsor.”