Pension risk transfer transactions started picking up in the third quarter in the United Kingdom after a slow start to the year, as favorable exchange rates enticed non-U.K. plan sponsors to take action on U.K. pension liabilities.
Since U.K. voters elected on June 23 to leave the European Union, sterling's spiral downward against the euro and other currencies has continued, driving European sponsors with U.K. pension funds toward transferring risk.
On Oct. 17, sterling was trading at £1.21 vs. the dollar, down 9% from £1.33 on June 23.
In the third quarter ended Sept. 30, Dutch paints and coatings company AkzoNobel N.V. and Spanish electric utility company Iberdrola SA announced deals for their U.K.-based pension plans.
AkzoNobel's ICI Pension Fund, London, with £9.3 billion ($11.3 billion) in assets, completed two post-Brexit buy-ins: a £750 million deal immediately after the referendum and a £980 million deal in October.
And one of Iberdrola's U.K.-based plans, the £1.2 billion Manweb Group of the Electricity Supply Pension Scheme, Lanarkshire, Scotland, completed a £1 billion longevity swap in early August, insuring current retirees' liabilities with Abbey Life Assurance Co. but retaining both administrative and investment responsibilities for the plan.
Russell Lee, director of strategic transactions in pension risk transfer at Legal & General Group PLC in London, said that U.S. sponsoring companies also will be taking advantage of the weakened sterling.
“Although we haven't yet seen many deals, there are a number of transactions in the pipeline involving a U.S. sponsor,” said Mr. Lee.
“U.S. sponsors who are cash rich, and who have tax capacity in the U.K., may be willing to make additional funds available to lock in these gains by the purchase of insurance,” he added.
Jay Shah, head of origination at Pension Insurance Corp. in London, said the time is right to transact for non-U.K. parent companies with operations in the U.K. Even though the drop in sterling adds to liabilities, deficits in non-sterling terms have not deepened to the same extent.