An upstart insurance business hoping to break into the ranks of companies that take over traditional pension funds is pushing ahead with its plans, despite its indirect owner’s intention to target the same market.
Paul Thompson, the chief executive and a co-founder of Utmost Group, said he was sticking with his plans to grab 5 per cent of the pension risk transfer market, or deals worth £2.5 billion, within two years.
The ambitious target came as Brookfield, the vast Canadian investment group, confirmed its own efforts to build a pension risk transfer business in Britain, potentially pitching it head-to-head with Utmost, which it indirectly controls through its ownership of Oaktree Capital, the private equity group.
Both potential entrants are scrambling to win approval from the Bank of England’s Prudential Regulation Authority and they hope to clinch their first deals in Britain before the end of this year.
While Utmost has been in the queue for a licence for longer, Brookfield has Mark Carney, a former Bank governor, as its chairman, as well as the firepower of being one of the biggest investment institutions in the world, with assets under management of more than $900 billion.
Advertisement
The arrival of two new entrants to the pension risk transfer business comes on top of the recent decision of M&G, which owns Prudential Assurance, to re-enter the market after an absence of several years, suggesting that competition is about to hot up.
Traditionally, the market has been dominated by a handful of insurers, with the six biggest — Legal & General, Pension Insurance Corporation, Rothesay Life, the Phoenix-owned Standard Life, Aviva and Just Group — accounting for about 95 per cent of all deals by value.
Employers with traditional defined-benefit pension schemes are eager to de-risk them through so-called bulk annuity deals or to hand them over entirely in transactions known as pension buyouts. The rise in government bond yields in recent years has dramatically improved the finances of many schemes and has made it possible for sponsoring employers to ditch them for little or no cost.
Utmost is 85 per cent-owned by funds managed by Oaktree and has expanded rapidly via acquisitions, buying a string of insurance and wealth management assets, including from Axa, Aviva, Generali, Equitable Life and Quilter. Last week it snapped up Lombard International, the wealth management insurer. Thompson also confirmed hopes to float the group, probably in London, within two years. It could be valued at £2 billion, potentially giving it membership of the FTSE 250 mid-cap share index.
Brookfield has been a leading player in property and infrastructure for years and owns half of Canary Wharf in east London, as well Center Parcs, the Teesport container port and a string of wind farms. In May, Sachin Shah, head of its Brookfield Reinsurance division, said: “There’s still probably close to $1 trillion of pensions that have to come off corporation balance sheets in the UK alone over the next two-decade period. We see tremendous growth there and it’s a market where we think, given our asset origination, we could be highly successful.”
Advertisement
Thompson said he had hired or was in the process of hiring 15 executives to lead his new pension risk transfer operation, which initially would focus on transactions with a face value of £100 million or less. “I’d be very surprised if we didn’t do our first deals in the second half of this year,” he said. “We’re targeting 5 per cent of the expected market. That’s £2.5 billion a year, and we think we can get there in two years.”
About £49 billion of pension risk transfer deals in Britain in total were done last year and insurers are hoping that this level of activity can continue as employers seek to wash their hands of legacy schemes no longer offered to present employees and which often are seen as costly and volatile distractions. While complete takeovers known as pension buyouts can take years to negotiate and complete, a range of partial deals, ranging from bulk annuity sales to buy-ins, can be pushed through more quickly. Thompson said the turnaround time could be as little as four to five months. Pension risk transfers can be capital-intensive, but he said Utmost was well placed because its Utmost International wealth management division threw off lots of cash.
Several pension risk transfer deals have been announced in recent days. These include Pension Insurance Corporation’s £1.2 billion buy-in deal with Total, the French energy group, which it said had secured pension promises to 5,500 pensioners and those members not yet retired, known as deferred members. M&G has announced a £309 million bulk purchase annuity deal, helping to secure pension promises to 3,700 employees of NSK, a Japanese bearings and car parts group. It was the group’s third deal since re-entering the pension risk transfer business. And Just Group has struck a £260 million buy-in deal with John Menzies, securing benefits for 3,000 members of the retailing and distribution group’s scheme.
While actuaries consulting on deals say there is enough business for an expanding supplier base, the extra competition could help sponsoring employers to strike more favourable terms. “There’s enough for everyone,” Thompson said.
Trustees generally like buyouts because insurers are seen as being stronger than most single-company sponsors and the protection offered by the Financial Services Compensation Scheme, in the event of failure, is comparable or arguably better than the Pension Protection Fund.
Advertisement
Brookfield was said to have considered a bid for Pension Insurance Corporation last year.
