The panel discusses bulk annuities.
Greg Wenzerul, corporate deal principal, Prudential
Greg Wenzerul joined Prudential in 2008 and is responsible for leading DB scheme de-risking transactions and associated business development activities. He has ten years' experience working within the defined benefit pensions arena, having previously worked at Watson Wyatt as a consulting actuary.
Emma Watkins, director of business development, MetLife Assurance
Emma Watkins is responsible for new business within the bulk annuity market through the development and management of ongoing relationships and enhancing MetLife Assurance's profile within the industry. Emma has more than 13 years' experience in the pensions arena.
Tom Ground, head of business development, bulk purchase annuities, Legal & General
Tom Ground joined Legal & General in 2010 and leads sales and business development activities for the bulk annuities and insured pension scheme solutions business. He has more than 12 years' experience working mostly with financial services companies across consulting, private equity and outsourcing.
Charles Cowling, managing director, JLT Pension Capital Strategies
Charles Cowling is managing director of JLT Pension Capital Strategies, and has over 25 years' experience in the actuarial profession. While the majority of his work involves advising companies, particularly in respect of de-risking pension schemes, Charles also devotes time to working with trustees and has retained a Scheme Actuary certificate.
Sammy Cooper-Smith, marketing director, Rothesay Life
Sammy Cooper-Smith has 14 years' life and pensions experience in a number of roles in sales, finance and customer services. He has worked with the trustees and their advisers on a number of de-risking transactions, including Powell Duffryn and TI Group, Lonmin and Chrysalis.
Are ‘all risks' bulk annuity transactions starting to become the norm?
Sammy Cooper-Smith: When you roll the clock back a few years the concept of ‘all risks' being transferred was only looked at in very specific circumstances.
However, with greater focus on quality of administration and significant strides having been made by trustees to cleanse their data before approaching the bulk annuity market, it is routinely an option, which is considered whether trustees choose to purchase this protection or not.
Further, we have seen the concept of purchasing all risks being broken down into its constituent parts, such that trustees consider the value and risk of each individual element, such as GMP equalisation, missing beneficiary cover and data risk to include incorrect benefits.
Whether these risks are insured or managed, it allows trustees and sponsors to have greater certainty regarding the price paid for settlement of the liability.
Trustees should certainly consider this option as a valid alternative to run-off cover.
Charles Cowling: The main risks covered by these types of transactions are data risks and GMP equalisation risks.
While it is rumoured that some insurers have lost out in the past from deals involving a full data transfer, we would expect a detailed due diligence exercise to be carried out on future deals, with realistic pricing to reflect the level of risk taken on.
Therefore, I would not expect this type of structure to be particularly attractive from a financial perspective, unless there are good reasons (such as imminent mergers and acquisition activity) to complete a deal very quickly before a full data cleanse can be carried out.
GMP equalisation is different, as a market standard equalisation method is yet to be agreed on and so insurance may be an attractive option.
There is evidence that insurers are pricing GMP equalisation more cheaply than they have done in the past, and so I expect this option could become a more popular feature of buy-in/buyout deals.
Tom Ground: Typically, ‘all risks' cover is only applicable to buyouts where the trust is being wound-up.
While a number of buyout transactions do seek some sort of additional cover, it is by no means the case in all or even most transactions.
Also, the majority of the bulk annuity market by premium is buy-ins, where both the trust and sponsor are still involved and so are able to pick up any costs that may arise with any emerging liabilities.
There is also no norm as to what is covered within ‘all risk' cover.
The additional risks taken on can vary from cover for missing beneficiaries and data risks, to more full-blown cover including GMP equalisation issues and wind-up expenses.
There is a clear rationale for ‘all risks' cover especially in cases where the sponsoring employer is insolvent as there is no additional source for any unknown liabilities.
However, trustees must weigh up the need for this cover with the impact the cost of it can have on the level of benefits being secured or the level of additional contribution required from the sponsor.
