The Total UK Pension Plan has agreed to insure more than 60% of its liabilities with Pension Insurance Corporation (PIC) in the UK industry’s second largest bulk annuity deal.
The pension plan, which has a total of £2.6bn (€3.2bn) in liabilities, agreed to insure £1.6bn with PIC, covering pensioner liabilities.
The deal surpasses the £1.5bn buyout arrangement for the EMI Group Pension Fund, also agreed with PIC.
Earlier this year, the ICI Pension Fund arranged a £3.6bn buy-in with two separate insurers, accounting for a third of its liabilities.
Chair of trustees for the pension scheme, Iain McCombie, described the deal as complex, but he said the arrangement remained favourable to the sponsor and the scheme.
LCP, the consultancy that advised the pension fund and sponsor, said the number of £1bn+ deals would increase this year, with the potential for more than £10bn in bulk annuity business by year-end.
Mayor Brown, the law firm, also advised the trustees of the scheme.
In other news, Aon, the US insurance group, has said it completed a five-and-a-half-year, £400m arrangement to allow a sponsor to offer surety bonds to its pension scheme.
A surety bond is an arrangement between a sponsor and insurance company that guarantees the pension fund receives payment in cases such as company insolvency or missed payments in deficit recovery plans.
The sponsoring company, a FTSE 100 firm, put in place the surety bond as part of the scheme’s funding strategy.
Aon Risk Solutions team leader Mark Holt said the arrangement was a market first.
“It has brought together eight major insurance companies in the largest syndication the UK surety market has ever seen,” he added.
Lynda Whitney, partner at consultancy and subsidary Aon Hewitt, said the surety bonds offered a new option for employer-scheme funding, one that did not strain working capital.
And finally, the deficits of defined benefit (DB) pension funds in FTSE 350 firms grew to £113bn over the month of May, according to analysis from Mercer.
The small increase of £2bn, on an IAS 19 basis, leaves scheme funding at 85%.
Assets also grew over the month, by £8bn, leaving total assets at £583bn, and liabilities at £686bn.
Senior partner in Mercer’s retirement business, Ali Tayyebi, said May was reminiscent of April, where total liabilities increased despite a rally from assets.
“Again, a fall in long-dated corporate bond yields was the driving factor behind the increase in liability values,” he said.