Europe's pension problem spurs return of veteran
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[April 23, 2018]
By Carolyn Cohn
LONDON (Reuters) - British pensions
specialist Clive Cowdery has raised $2 billion in commitments from
investors for a new fund to buy up life insurance policies from
companies struggling to make enough money to cover long-term payouts,
sources told Reuters.
The fund is one of a series of new ventures designed to capitalize on
the difficulty life insurers and company pension schemes face in
generating the returns required in an environment of low interest rates
and tougher capital rules.
Besides Cowdery's fund, the newly formed European Insurance
Consolidation Group (EICG) is also looking for life insurance deals
while pensions veteran Edi Truell and fund Clara Pensions both plan to
take on defined benefit schemes from British firms.
Specialist providers say they can run pensions and life policies at a
lower cost by using economies of scale, investing more astutely and
using actuarial expertise to match assets more closely to liabilities -
and thereby reduce risk.
Cowdery, founder of The Resolution Group, one of UK life insurance's
biggest names, will be focusing on life insurance policies closed to new
customers in continental Europe and the United States, three sources
Cowdery declined to comment.
EICG director Jurgen Schweigert, who is a former Resolution executive,
said there were a number of life insurance policy portfolios up for
sale, including two books in southern Europe with about 5 billion euros
($6.1 billion) in assets.
"There is a lot of capital out there chasing this opportunity,"
Schweigert told Reuters, declining to give more details about any of the
assets on offer.
Existing insurance entities backed by private equity firms Apollo and
Cinven are also vying for Italian insurer Generali's <GASI.MI> 43
billion euros of German life insurance business, banking sources told
Generali declined to comment.
British insurer Prudential <PRU.L> sold 12 billion pounds ($16.8
billion) of closed annuities books this year to Rothesay Life and market
sources estimate there are about 100 billion pounds of such portfolios
available in Britain. [nL8N1QW1BN]
Some large insurers have pulled out of offering costly pensions in
Britain, or the rest of Europe, to focus on growth areas - such as Asia,
in the case of Prudential.
In Britain, companies are starting to transfer pension schemes
calculated on workers' final salaries to insurers, to take the pensions
risk off their balance sheets.
Such schemes, which guarantee a fixed payment to pensioners, have been
closed by many companies because of their cost but still have a
collective deficit of 116 billion pounds.
Truell, co-founder of the firm which became specialist annuity provider
Pension Insurance Corporation, is one of the backers of The Pension
Superfund, a new venture designed to manage British company pension
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A group of elderly people sit in the shade in a park in Vienna,
Austria June 28, 2017. REUTERS/Leonhard Foeger/File Photo
The superfund is capitalizing on British proposals allowing for the
consolidation of company pension funds to make them cheaper to manage.
The fund also comes under Britain's pensions regulator, rather than the
Prudential Regulation Authority for banks and insurers. Capital costs for
insurers offering pensions have risen due to Europe's tougher Solvency II rules.
Truell told Reuters the structure of the superfund would give it greater freedom
to allocate assets than an insurer because it won't face their regulatory costs
and could invest more easily in higher-yielding assets, such as infrastructure.
The Pension Superfund will, however, face competition from at least two other
similar funds looking to take on British company pension schemes, including
Clara Pensions, sources said.
Clara Pension's co-founder Kim Toker declined to comment.
The Pension Superfund model provides a cheaper alternative to the bulk annuity
model that has been in vogue in recent years, Truell said.
Insurers, however, argue their high capital requirements make pension payments
through a bulk annuity more secure than the pension consolidation fund approach
being adopted by the Superfund and other new players.
In a bulk annuity arrangement, an insurer takes over the risk of a defined
benefit company pension scheme, also known as a final salary scheme.
The bulk annuity market is relatively small compared with the two trillion
pounds of liabilities in company pension plans. Schemes which are heavily in
deficit find it hard to pay the insurance premium required for a bulk annuity.
However, ratings agency Fitch described it as one of the few life insurance
sectors with significant growth prospects, even though barriers to entry are
high because of the capital costs and specialist skills needed.
Advisory company Willis Towers Watson <WLTW.O> estimates the market will total
15 billion pounds in premiums in 2018, up from an average 10 billion to 12
billion in recent years.
The UK bulk annuity market is also attracting new entrants.
Insurers Canada Life, Phoenix Group <PHNX.L> and Scottish Widows have all
entered the market in the last couple of years, bringing the number of players
in the United Kingdom to eight.
But industry sources expect new entrants in 2018, including one firm backed by
venture capital which has plans to insure smaller company schemes. The sources
declined to name the firm.
(Additional reporting by Paulina Duran in Sydney and Arno Schuetze in Frankfurt;
editing by David Clarke)
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