IRELAND - Zurich Life Assurance has been granted the first license by Ireland's Pensions Board to sell sovereign annuities, anticipating the market will grow to be worth €10bn over the next three years.

The annuities, linked to any euro-zone sovereign bond, will see the risk of the underlying bond default transferred to the annuity holder, rather than the insurance company issuing the product.

Speaking with IPE, Zurich Life's pensions director Brendan Johnston estimated that the market would be worth "more than €3bn and less than €10bn", with business likely to spread out across several other insurance companies yet to enter the market, in addition to Zurich.

"There are certainly a number of schemes that are looking at it," he said. "Where it is going to be used is to re-balance the liabilities between actives and pensioners."

Under current law, defined benefit scheme pensioners are prioritised above active members, with the relatively lower cost of sovereign annuities over those linked to the German bund, meaning schemes can expect to cover a larger amount of liabilities.

Johnston added that he expected the majority of products to be based around new Irish bonds - with the National Treasury Management Agency recently announcing it would begin issuing long-dated amortising bonds, with maturities of up to 35 years being mooted.

He said trustees' focus on Irish paper, which proved a "good match" for the annuity due to its staged coupon payment, would stem from the default risk they would be taking on in buying the new issuances.

"If there is a default, I'm sure they'd much prefer they wouldn't involve any other country than Ireland," Johnston said.

"You can imagine that if you went into French bonds, and in 10 to 15 years it defaulted, you being the only one to have that French bond, then it would come across badly for the trustees."

A spokesman at the Pensions Board was unable to comment on further licenses being granted, only saying that several parties had expressed an interest.