Intact Financial Corporation has announced that the RSA UK Pension Trustees have entered into an agreement with Pension Insurance Corporation (PIC) for Bulk Purchase Annuities with respect to £6.5 billion of RSA UK pension plan liabilities.
According to Intact, the buy-ins fully insure the defined benefit liabilities of the Royal Insurance Group Pension Scheme and the Sal Pension Scheme to PIC, a specialist insurer of defined benefit pension schemes.
Louis Marcotte, Executive Vice President and CFO of Intact Financial Corporation, commented, “The current market environment provides an excellent opportunity to remove UK pension exposure on IFC’s balance sheet and maintain the security of the benefits of 40,000 RSA UK pension scheme members.
“This transaction represents a cost-effective de-risking, with the upfront payment approximately equal to the remaining annual funding contributions and the capital released.
“Meanwhile, the key metrics related to our RSA acquisition continue to be very strong, and the buy-ins strengthen our ability to pursue growth opportunities.”
Uzma Nazir, Head of Origination Structuring at PIC, said, “We are proud to have completed an extremely complex bulk annuity deal, the largest pension scheme to insurer transaction the market has yet seen.
“From pricing during the unprecedented volatility of the LDI crisis in the autumn of last year to structuring the buy-in to address the issue of asset suitability, this transaction overcame many of the hurdles that very large pension schemes face as they accelerate their de-risking plans in light of rising gilt yields.
“The transaction could only have been completed with strong teamwork from the Trustees, the sponsor, and their respective advisors, and I want to thank everyone involved for their constructive engagement which enabled this positive member outcome.”
In a joint statement, Ray Cox, Chairman of the Sal Pension Scheme, and David Smith, Chairman of the Royal Insurance Group Pension Scheme, noted, “We are delighted to have completed this transaction, securing the pensions for members of both Schemes for the long term.
“PIC were flexible in their approach, presenting innovative solutions to previously intractable problems, as well as proactively addressing issues which might have derailed the process.
“We want to thank the various advisory firms for their support and hard work in completing this landmark transaction.”
According to Intact, The transaction fulfils several strategic objectives, including the transfer of all remaining economic and demographic risks associated with the Pension Schemes to a strong and specialized insurance counterparty, removing balance sheet exposure to pension risks that are non-core to its business, while supporting Intact’s ROE outperformance objective by improving capital efficiency.
The transaction also eliminates Intact’s obligation to contribute £75 million per year to the schemes and releases approximately £150 million of capital, which in aggregate are approximately equal to the upfront contribution.
In addition, it enhances Intact’s ability to capture future strategic opportunities as it would not be constrained by the responsibility of managing £6.5 billion of pension liabilities.
Intact will facilitate this transaction through an upfront contribution to the Pension Schemes of approximately £500 million.
The upfront contribution is expected to be funded using approximately $300 million of excess capital, $300 million of hybrid capital and/or preferred share issuance, as well as short-term debt.
Intact was advised on the transaction by Lane Clark and Peacock and Slaughter and May.
