Rothesay Life insures £484m of Philips pension risk, including longevity

Rothesay Life, a leading UK pension risk transfer specialist life insurer and provider of bulk annuities, has completed a pension risk transfer transaction for the Philips Pension Fund, taking on a portion of its liabilities including longevity risks.

Rothesay Life announced yesterday that it has entered into a bulk annuity transaction with The Philips Pension Fund. The deal saw Rothesay cover a £484m subset of the funds liabilities owed to pensioners in payment and their contingent beneficiaries. UK gilts and cash that were held by the Philips fund have been exchanged for the insurance policy which gives it a secure, low risk asset with additional protections, including cover against longevity risk and pension increase risk.

Rothesay Life said that this transaction is another example of a large pension fund executing a mid-market transaction (£100m to £500m) in order to insure a portion of its liabilities.

Addy Loudiadis, CEO, Rothesay Life, commented on the transaction; “We are delighted that the Philips trustees have selected Rothesay Life to manage a portion of their risk in paying defined benefit pensions to their members. Rothesay Life was able to provide both the trustees and the sponsoring employer with the price certainty they required, by locking our economics to a portfolio of assets already held by the Fund, immediately on being selected as the chosen insurer.”

David Jordan, Chairman of the Trustee of The Philips Pension Fund, said; “The trustees spent significant time assessing the merits of purchasing a buy-in contract in the context of the Fund’s low risk investment strategy. A key requirement was to secure, at optimal cost, a comprehensive insurance policy that would deliver a close match to the Fund’s obligations to its members. Rothesay Life were pragmatic in their approach to designing the insurance solution, demonstrating flexibility in order to address our needs.”

Clive Wellsteed, Partner at LCP, adviser to the Trustee, added; “With £3.5bn of liabilities in total, we helped the trustees understand which parts of the liabilities provided best value for the risk reduction to be achieved. The Trustee working group, LCP and Rothesay Life worked closely together to ensure the terms agreed early on supported a speedy and efficient negotiation phase to final contract. The market continues at a brisk pace: 2013 volumes to-date have already exceeded the £4.4bn completed in the whole of 2012.”

The market in pension risk transfer, and longevity risk transfer for pension funds, looks set to grow. Demand for structures which allow pension plans to offload the future risks of an aging population make a liquid market in longevity risk ever more essential. The insurers and reinsurers, like Rothesay Life, involved in pension risk transfer can only take on so much longevity risk themselves before a pipeline or liquid market to pass longevity risks along becomes a necessity.