Paternoster, the specialist pension insurer, has won the race to break the duopoly of Prudential and Legal & General in the bulk annuity market.
The reinsurer, founded by a former Pru executive, Mark Wood, yesterday revealed it has agreed to take on the assets and liabilities of five final-salary pension schemes collectively worth about £100m.
The deals include the pension fund of former Lloyds of London insurer Cuthbert Heath, plus four other schemes Paternoster has yet to name. Mr Wood said the company was in talks with a further 110 pension schemes over similar agreements.
Paternoster's business model is based on taking on the liabilities of final-salary pension schemes run by small and medium-sized employers. By combining the assets of the schemes in order to gain economies of scale and using sophisticated life expectancy computer modelling, it expects to be able to deliver the pension promises made to staff while also earning a profit for its own investors. The insurer accepts both the assets and the liabilities of the schemes and is usually paid an additional fee by each employer.
"We can negotiate with fund managers and administrators at greater value than these schemes could manage individually," Mr Wood said. "Also, as we are aggregating assets we can match cashflow to liabilities much more accurately and economically." Paternoster is one of several privately owned firms launched over the past 18 months as rivals to L&G and Pru, which offer a similar service by selling bulk annuities to cover the pension payments of entire schemes.
The final-salary pension fund market is worth £1 trillion, though FTSE 100 companies account for £400bn of this money and Paternoster and its rivals are focused on smaller schemes anxious to outsource open-ended pension liabilities.
Paternoster is regulated by the Financial Services, Authority rather than the Pension Protection Fund, because it is structured as an insurer rather than an occupational scheme.
The FSA authorisation means that pensioners would in theory be protected by the Investors Compensation Scheme, which is more generous than the PPF, in the event of Paternoster going under. But Mr Wood said the company had secured £500m of funding from backers and would manage its assets on an "extremely prudent" basis.Reuse content