LONDON (Reuters) - Pension transfer prices remain stable despite volatility in wider financial markets following the sovereign debt crisis, said benefits consultant Mercer, as two pension insurance deals closed on Monday totaling 1.73 billion pounds.
The U.S. credit rating downgrade from Standard & Poor’s and the ongoing euro zone sovereign debt crisis has had little impact on bond yields, which drive the price costs of pension insurance buyouts and buy-ins - known as bulk annuities.
Unlike in 2008, there is no perceived extra risk in the corporate bond sector,” said Mercer in a statement on Monday. “At that time, this had made insurers nervous resulting in rising bulk annuity prices.”
Buyouts are used by companies to pass on pension assets and liabilities, which as retired workers live longer can in extreme cases threaten an employer with insolvency. Buy-ins are generally used to insure a scheme’s liabilities but leave most of the assets within the scheme.
British specialist insurer Pensions Corporation said on Monday it has completed an insurance buyout deal for the Nova Chemicals UK Pension Plan.
The energy company has transferred 30 million pounds of liabilities and 155 members in a pension buyout deal, Pension Corp said in a statement.
The insurer said it was involved in auction processes for buyouts and buy-ins totaling around 9.5 billion pounds - having already written 500 million pounds of new business in 2011.
Meanwhile, Credit Suisse CSGN.VX has taken on 1.7 billion pounds of risk posed by people living longer than expected from ITV’s (ITV.L) UK pension scheme, in the third biggest risk transfer involving a UK pension scheme to date, according to Towers Watson TW.N, who advised ITV on the deal.
The longevity swap contract will cover the British scheme liabilities related to about 12,000 retired members, which will see the British terrestrial TV broadcaster make fixed monthly payments to Credit Suisse, and in return the Swiss bank will make payments to the scheme that broadly match the value of the benefits being paid out.
“Typically, pension schemes expect today’s pensioner’s to live two or three years longer than they budgeted for a decade ago,” said Paul Kitson, a senior consultant at Towers Watson.
Shares in ITV gained 2.5 percent, outperforming the FTSE 100 .FTSE index following the longevity swap.
“We see this as a positive in that it limits ITV’s risk on its sizeable pension liabilities,” JPMorgan analysts said in a note.
Only a handful of longevity swaps have been formatted to work for a pension scheme in Britain — around 8 billion pounds in the past five years, according to Pension Insurance Corporation.
The biggest so far involved German car maker BMW last December offloading 3 billion pounds of risk from its British pension scheme to Deutsche Bank’s insurance subsidiary Abbey Life.
Reporting by Sarah Mortimer; Editing by Jon Loades-Carter