Two prominent UK insurance firms have finalised agreements to assume a total of £8.8 billion ($11 billion) in corporate pension liabilities, marking a significant move in the UK’s pension landscape. This includes the country’s biggest deal of its kind to date, as pension schemes aim to reduce their exposure to the uncertainties of fluctuating markets.
Legal & General announced a comprehensive buy-in agreement with the Boots Pension Scheme, valued at £4.8 billion.
Rothesay, a specialist in pension insurance that manages over £48 billion in assets, also confirmed a £4 billion buy-in with a portion of the Co-operative group’s pension scheme. The Co-operative group operates across various sectors, including food, funerals, insurance, and legal services.
These deals, also known as bulk annuity agreements, involve pension scheme trustees paying a premium to insurers to take on certain liabilities. 2023 is anticipated to be a record-breaking year for such transactions, which have typically hovered around £30 billion annually in the UK.
The surge in deals like this has caught the attention of regulators, including the Bank of England’s Prudential Regulation Authority. The Authority recently cautioned life insurance firms engaged in these transactions to moderate their reliance on reinsurers, especially those based abroad, due to potential risks. “We have observed many transactions resulting in significant day one ‘new business gain’,” said the authority in a release, “and have considered whether the capital treatment is consistent with the risks transferred and counterparty risks retained by insurers.”
“The PRA will continue to challenge these areas where we see weaknesses within firms or inadequate justification for the assumed effectiveness of management actions,” it continued.
It’s common practice for insurers to pass on a portion of these liabilities to reinsurers. Legal & General (L&G) attributed the heightened demand for these agreements to rising funding ratios for pension schemes, as funds seek stability against global market shifts and increasing interest rates.
In 2023, L&G has globally secured pension risk transfer deals worth £13.4 billion, a significant increase from £9.5 billion in the previous year. With an estimated solvency ratio of 224%, the company is well-positioned to expand its footprint in this sector.
Boots, a prominent health and beauty products retailer with a history spanning over 2,000 stores and 52,000 employees, is among the UK’s most established and recognized high street brands.
