IRELAND – Insurer Irish Life has completed a €20m buyout using sovereign annuities, its first deal with the product and coming less than a month after gaining a certificate from the Pensions Board.
The company would not disclose the name of the pension fund involved, only saying that the defined benefit (DB) scheme would transfer all remaining members to a defined contribution (DC) arrangement.
The deal comes a few months after an Irish Association of Pension Funds survey found interest in buyouts among the country's schemes had doubled.
Irish Life was certified in December and is only the second company to offer sovereign annuities, three months after Zurich Life.
Commenting on the speed of the transaction, executive manager for risk and longevity Shane O'Farrell told IPE they had been working with the fund in parallel to the certification process by the Board.
He added that the trustees knew Irish Life was "on the verge" of gaining regulatory approval and were therefore preparing the transaction.
O'Farrell said the cost of the buyout was split almost evenly between sovereign and standard annuities, with trustees using the arrangement to offer a minimum underpin to all members.
"This way, the trustees can regulate the level of risk they are taking on – combining sovereign annuities with traditional annuities," he said. "As a result, they have come up with this blended product."
He said Irish Life was discussing a number of other deals with pension funds, but that none was imminent, dismissing the possibility that schemes would be put off by the falling yield on Irish debt.
"Obviously, the discount on sovereign products has come down as the yield has come down, so the discount now averages about 18% versus standard bulk pricing," he said.
He added that trustees would be likely to take comfort in the fact the falling yield would also mean the perceived risk of the underlying Irish Amortising Bond (IAB) would be lower.
An auction in August of €1bn of IABs saw an average yield of 5.91%.
Since then, the yield on Ireland's benchmark nine-year bond has fallen steadily, closing out 2012 at 4.53% and dipping as low as 4.39% yesterday.
O'Farrell said trustees would continue to view even this discounted rate as worthwhile.
"Even for the near future, a lot of schemes will take the view that any element of discount is better than nothing," he said.