UK - New joint venture PensionsRisk is looking to buy-out firms such as Paternoster to underwrite its insurance-based approach to managing DB pensions risk as it targets schemes with liabilities upwards of £100m.
Law firm Beachcroft LLP, insurance advisers and consulting actuaries Paterson Martin and financial services consultant Andrew Campbell-Hart have joined forces to offer a fully underwritten insurance contract to the DB pensions market.
The firm estimates the solution, with pricing unique to each scheme, is “up to 90%” less expensive than a full buy-out.
However, Martin Roberts, a director of PensionsRisk, insisted the new company did not view itself as a competitor to buy-out providers.
“We don’t see ourselves as a competitor for a number of reasons,” he said. “We are an alternative to LDI-type strategies, offering a more comprehensive solution. We are looking to these [buy-out] firms to underwrite the transactions, allowing them to enhance their product range, taking it to a wider market.”
Campbell-Hart estimated that only 1-2% of DB schemes in the UK could “reasonably contemplate” a full buy-out, adding that finance directors had shown interest in the new solution.
“We are taking well established technology from the re-insurance market and bringing it to the pensions market where it has never been applied before,” he said.
“It is a fairly conventional insurance policy... it enhances scheme security by having the backing of a AA insurer in addition to the plan sponsor, should the sponsor go into liquidation.”
Under PensionsRisk Insurance (PRI), the scheme transfers specific risks to the insurance company which funds all pensions to scheme members over a 10 year period.
The scheme continues to operate under the trustees’ control, and at the end of the period, the insurer returns assets at least equivalent to the value of scheme liabilities.
Although it is targeting the UK market, PensionsRisk believes its product could be applied in other markets such as the US.
Richard Hobbs, chairman of PensionsRisk, commented: “Until now, companies have had two choices: to run their DB scheme themselves or transfer it to an insurance company via a ‘buy-out’. Our new approach provides a fundamentally new choice for senior management seeking a solution to their company pension scheme problems... it increases trustee security and confidence, and is likely to be significantly less expensive than the usual buy-out option.”
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