The Allied Domecq Pension Fund has insured £3.8bn of members’ benefits with Rothesay Life, in the market’s largest deal to cover both pensioner and deferred members.
The transaction, announced today (27 September), comes hot on the heels of a record-breaking £4.7bn buyout by the same insurer of the GEC 1972 Plan, confirmed just yesterday.
The Allied Domecq deal insures the present liabilities of the majority of scheme members, and is structured as an asset of the scheme. The benefits of around 27,000 members of the former FTSE 100 company are covered by the deal, with around 37% being deferred members.
Trustee chairwoman Lisa Arnold said: "This buy-in is a key step on a long journey of de-risking taken by the fund, with strong support along the way from the sponsoring company. It represents a major achievement, improving security for all our members."
Rothesay Life said its total assets under management now exceed £50bn, more than double the £24bn recorded at the end of 2017. This year alone, the insurer has confirmed insurance for around £12.9bn of pension scheme liabilities, 42% of the market so far.
Co-head of business development Sammy Cooper-Smith said he was "grateful" to the scheme and its advisers for efforts that allowed the deal to take place "well ahead of schedule".
"The fund came to market with clear, well thought through objectives which allowed us to focus on providing tailored solutions for its key requirements," he continued.
"This transaction is further evidence that large maturing pension schemes are increasingly looking to secure de-risking opportunities. Rothesay Life's balance sheet strength, expertise and considerable ongoing shareholder support means that we are a very good insurance partner to the largest pension schemes in the UK."
The insurer said its shareholders had contributed an additional £200m of equity to support the deal, on top of £500m agreed earlier this month.
The scheme had been advised by Hymans Robertson and DLA Piper, while Rothesay Life was advised by Linklaters.
Hymans Robertson partner Michael Abramson, who acted as lead adviser, said: "We worked closely with the fund to clearly define and achieve its objectives, ultimately helping the fund to navigate a very busy bulk annuity market and lock down terms for £3.8bn of liabilities with Rothesay Life."
He added that "despite low interest rates", there is "strong demand" for bulk annuities, and an expectation further large transactions would be announced this year, while 2020 also had a "strong pipeline" already.
The deal comes amid the backdrop of a burgeoning bulk annuity market, with nearly £31bn of deals now confirmed as having been transacted in the busiest year yet recorded. This deal is also the second largest buy-in to take place in the UK.
With three months of the year left to go, consultant expectations of the volume of deals totalling £35bn or maybe even £40bn and higher are looking increasingly likely.
PwC partner Paul Kitson said the £31bn figure was, however, slightly skewed by "a ‘normal' number of very large deals, rather than a very large number of normal size deals".
For example, yesterday's GEC buyout was the third time in 12 months that a deal had been announced as the largest transaction, he said - and today's is the sixth £1bn-plus deal announced this year.
"The exponential increase in total volumes is being strongly driven by these ‘mega deals'," he said. "When all is tallied up at the year-end, it will be interesting to see whether the overall number of completed transactions has been impacted by the focus on a few very large transactions."
Aviva Life & Pensions has concluded an £875m buy-in with its own staff pension scheme, following on from a similar transaction last year.
Just Group has completed a £74m pensioner buy-in with the UK pension scheme of a US-listed engineering business.
The Smiths Industries Pension Scheme has secured a £146m buy-in with Canada Life in its fourth bulk annuity and its sponsor’s tenth overall.
The Prudential Staff Pension Scheme has entered into a £3.7bn longevity swap with Pacific Life Re, insuring the longevity risk of over 20,000 pensioners.
The Baker Hughes (UK) Pension Plan has secured approximately £100m of liabilities through a buy-in with Just Group.