It's been a busy month for the North American de-risking market. In March, Global Pensions reported the start of the buy-in/buyout market in the US was imminent, and likely to emerge before the end of the year. It appears we were right.
Prudential announced the first US buy-in in May. The firm said it had entered into a $75m risk transfer deal with Hickory Springs Manufacturing Company, which signed on as Prudential’s first client in its portfolio protected buy-in product. (See full story here)
Also in May, the Ontario government in Canada approved regulation that would allow the retirees of Nortel, which went under in 2009, to participate in Canada’s first pension buyout. New legislation was required to put this through because previously under Ontario law, wound-up pension funds had to be annuitised.
However, the annuity market in Canada was not developed enough to take on the scheme of what had been Canada’s largest company, so an alternative was sought. (See the related video at www.globalpensions.com/media-centre)
It’s interesting that the Canada deal, though originally agreed-to by the government in January, did not pick up much international coverage.
The key could be in the wording. In Canada, it was called the Financial Sponsorship Model. It sounds quaint, though at the heart of the deal, it is a buyout with an insurer taking responsibility.
I wonder if a similar euphemism will come out of the US when we see buyouts emerge there.
I was recently speaking to a plan sponsor in the UK who said his US counterparts were concerned about how the term buyout – with its connotations of offloading responsibility – will appeal to employee unions. Indeed, appearances alone could slow down the developments of buyouts in the US.
Regardless, where there’s one, there’s many and no one should be surprised to see these first two deals as the start of a likely flood.
Raquel Pichardo-Allison, Editor
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