UK - Scheme sponsors are increasingly transferring property to insurance companies in risk reduction deals as insurers develop innovative ways of taking on scheme liabilities, experts say.
Hymans Robertson partner James Mullins said insurers are open to buy-in and buyout transactions whereby a sponsoring employer pre-funds the buyout by entering into a sale and long-term leaseback of property with an insurance company.
Mullins (pictured) said: “Where a company does not want to put cash in to plug the deficit but does have some valuable property within the business, they strike a deal with an insurance company to use a property to plug the buyout deficit.”
In September last year, Alliance UniChem passed on £300m of scheme liabilities to an insurance company to plug its scheme deficit. It is understood £80m of this was from a property asset.
Pension Corporation co-head of business origination David Collinson explained insurance companies can buy properties from the sponsor and then effectively lease them back on a long-term lease.
He added: “We get an asset that economically fits well within our asset portfolio – a long-term rental income stream indexed in line with inflation, which is a good match for annuity liabilities and the sponsor gets to buyout or buy- in its scheme liabilities without having to find cash.”
LCP partner Charlie Finch said Solvency II will drive insurance companies to be more flexible on the asset side as it will place tighter restrictions on the assets schemes can hold, reducing the focus on long-dated credit most insurance companies have at present.
He added: “Property gives an index-linked return to help hedge inflation risks – but it is a new idea to take it on directly from pension schemes. It is another tool in the repertoire for insurance companies and companies to find ways of making buy-in deals happen.”
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