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High Court blocks £12bn Prudential-Rothesay annuities transfer

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Insurer capacity for bulk annuities could increase in the wake of the High Court blocking the transfer of a £12bn (€13bn) back book of individual annuity policies from Prudential to Rothesay Life, according to a pensions expert.

It is unusual for a judge to withhold approval of a so-called Part VII transfer. 

Charlie Finch, partner at consultancy LCP, said the High Court ruling could make groups think twice about pursuing insurer-to-insurer transfers, which could in turn mean more capacity for bulk annuities was freed up.

“Firms like Pension Insurance Corporation, Legal & General or Rothesay Life will often quote on these annuity transfers, and if there are fewer of those coming to market then they will have more appetite to do pension buy-ins and buyouts instead,” he told IPE.

Finch also said Friday’s ruling should give pension scheme trustees comfort that effective protections were in place in the event a provider sought to transfer annuities to another insurer. 

The High Court judge blocked the Prudential-Rothesay transfer on the grounds that Rothesay did not have the characteristics that policyholders were drawn to in selecting Prudential as their annuity provider.

The judge said Rothesay was a “relatively new entrant without an established reputation in the business” and although it had solvency ratios at least equal to Prudential’s, “it does not have the same capital management policies or the backing of a large group with the resources and a reputational imperative to support a company that carries its business name if the need were to arise over the lifetime of the annuity policies”.

One of the main developments in UK pensions in the past year or so has been buoyant activity in the market for de-risking via insurers. The market hit a record £17.6bn in the first half of the year, and consultants have predicted more than £40bn of deals for the full calendar year. 

M&G demerger unaffected

The transfer of Prudential’s £12bn annuity back book was announced in March last year in connection with Prudential’s plans to spin off its UK and European investment business. It had already reinsured the annuity book with Rothesay.

Prudential said it was “disappointed” by the High Court’s decision, but it had no impact on the schedule for completing the demerger of M&G Prudential – expected in the fourth quarter of this year.

It also said the judgement had no affect on the benefits and service for the policyholders covered by the proposed transfer.

Prudential and Rothesay have a right to appeal.

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Readers' comments (1)

  • It's a very interesting judgement (https://www.bailii.org/ew/cases/EWHC/Ch/2019/2245.html) and demonstrates that judges are not simply nodding things through.

    There's a rather amusing observation (item 163 in the judgement) that PAC seemed almost to be dissing itself in order to argue in favour of the transfer of policies.

    I was marginally involved in another similar (though non-annuity) case as a policyholder -- in that case the transfer was approved -- and I was extremely impressed by the care taken by counsel in presenting the case and the judge in reaching his decision.

    I wonder if sales literature for annuities will now start to explicitly spell out the possibility of a "Part VII" (Financial Services and Markets Act 2000) transfer?

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