The largest ever UK pension insurance buyout transaction has been recently completed by specialist insurer Pension Insurance Corporation (PIC). The transaction saw PIC insure the full £1.5 billion of liabilities associated with the 20,000 members of the EMI Group Pension Fund.
The pension derisking market continues to grow in the UK, with transactions increasing in size. Buyouts like this have become rarer in recent months due to the depressed bond yields, which are often used within bulk-annuities which underpin the financing of these transactions. This deal is not purely a pension fund longevity risk transfer, instead it transfers all liabilities associated with the pension fund, including the longevity risk, to PIC, who now take on responsibility for meeting pension fund members benefits.
The deal is interesting as it was actually Citigroup, the bank, which has offloaded the EMI pension fund liabilities which it assumed when it took on the EMI music business back in February 2011. As part of the purchase of EMI, Citi agreed to take on the pension fund as well, but clearly that didn’t fit with its strategy and it has now chosen to offload it completely.
Clive Gilchrist of BESTrustees and Chairman of the trustee company commented; “I have written to the Fund members telling them that their benefits have been secured in full with PIC; as a trustee, fully securing benefits is the ultimate goal. An enormous amount of time and effort has been put into this by all concerned. The outcome demonstrates how worthwhile it has been.”
Swapnil Katkar of Citi’s Pension Solutions team said; “We ran a disciplined process that allowed the trustee and sponsor to achieve their objectives of acquiring all risk cover on competitive terms from a leading provider. Working closely with the trustee board, sponsor representatives, insurers, legal counsel and actuarial advisors allowed us to conclude the policy acquisition within five months, ahead of plan, despite the low interest rate environment and volatile market conditions.”
David Collinson, co-head of Business Origination at Pension Insurance Corporation, added; “We are proud to have completed this transaction, the largest ever pension insurance buyout. We worked closely with all parties to help them move rapidly through the process and to give them price certainty through an “All Risks” structure.”
As pension funds become ever more complex to manage it is expected that more buyouts will occur, transferring the risk and responsibility to firms which are specialists in pension fund management and provision. The looming risk of longevity is just one of the factors that encourages firms to offload pension liabilities. Of course, as firms like PIC continue to absorb more longevity risks through these large deals the need for a market in transferring longevity risks and longevity hedging becomes ever more important and it is expected that eventually longevity risk transfer will become much more prevalent.