RSA Insurance Group insured £1.9 billion ($3.1 billion) — or about one-third — of the liabilities associated with its two U.K. defined benefit pension plans, the company said today.
The affected plans are the Royal Insurance Group Pension Scheme and the Royal & Sun Alliance Insurance Group PLC SAL Pension Scheme, both of London, with combined assets of £4.4 billion.
The deal involves swaps and longevity insurance contracts with Goldman Sachs and its subsidiary, Rothesay Life, that delivers an insured income stream for retirees while protecting the pension fund from longevity, inflation and interest rate risks, said RSA spokesman Jon Sellors.
The deal is similar to a bulk purchase annuity contract, but with significantly enhanced security, RSA said in a news release.
This is the latest in a series of steps to reduce pension risks for the plans, including selling about £900 million in equities in 2007 to reduce exposure to 24% from 46%.
Paul Trickett, European head of investment consulting at Watson Wyatt Worldwide, the lead investment consulting adviser on the deal, said in a separate news release that more pension funds will likely follow RSA’s lead because annuity policies are “less attractive than a year ago” and because “trustees can retain control of how the assets are invested and don’t need to sell other assets they are holding in order to enhance returns. There is also a key benefit of increased ability to manage counterparty risk.”
