Pension Corporation have entered into another deal which see’s them take on the assets and liabilities of a UK pension scheme. The latest transaction see’s Pension Corporation take on over £60m of pension liabilities from manufacturer Toray Textiles.
Toray, owned by a Japanese manufacturer has a defined benefit pension scheme in the UK with around 800 members. They have been able to offload the liabilities associated with the scheme through this deal including the longevity risk associated with it. This is the fourth deal Pension Corporation have undertaken with a Japanese-sponsored pension scheme.
Pension Corporation have been taking on significant amounts of longevity risk through the deals they have undertaken to de-risk other companies pension schemes. You have to think that at some point in the future they will be looking to hedge or transfer those longevity risks to other parties with the capital markets a likely counterparty.
Also today, Lane Clark & Peacock LLP have published a report which suggests that the pension buy-out and de-risking market is set to expand and that conditions are favourable for more of these deals to take place at the moment. The report says:
Current conditions are favourable for pension plans looking to reduce risk in this way. Affordability for insurance buy-ins is at its best level since 2008 and competition between providers is strong – five insurers each wrote business exceeding £700m in 2010.
Momentum is being generated by a jump in the number of pension plans closed to future accrual – from 7% to 17% during 2010. The potential threat of insurance rules under Solvency II being extended to pension plans will only accelerate the transition of pension plans to insurers.
You can access the report from LCP here.