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Legal & General has struck a deal to take over billions of pounds of pension liabilities from Ford, as the insurer seeks to reinforce its dominant position in the UK’s increasingly competitive pension buyout market.
The £4.6bn deal will cover the retirement savings of 35,000 people and has put L&G on course to achieve the highest value of deals this year, despite the arrival of North American players forcing more aggressive pricing.
The UK’s pension-risk transfer market, in which companies pay insurers to take on their financial obligations to retirees, drives the majority of L&G’s group revenue and has attracted private capital giants Apollo and Brookfield Asset Management.
“Pension-risk transfer is our biggest business . . . it’s really important to us to show that we can operate in what is a very competitive market to secure this” Andrew Kail, chief executive officer of institutional retirement at L&G, told the Financial Times.
The deal with the US carmaker was spread across two of Ford’s UK pension schemes — the Ford Hourly Paid Contributory Pension Fund and the Ford Salaried Contributory Pension Fund. Such deals benefit retirees through greater security of their retirement income even if their former employer runs into financial difficulty.
Jonathan Wood, chair of the board of trustees for the Ford pensions, said he was “delighted to have achieved this significant further de-risking milestone, providing even greater security for our members”, having worked on the deal for “many years”.
Companies, including NatWest and Rolls-Royce, have sold part or all of their defined benefit schemes to insurers in record volumes in recent years as schemes’ funding levels improved after a rapid rise in government borrowing costs reduced the value of future liabilities.
Meanwhile, the prospect of lucrative deals has drawn more players into the PRT market. Athora, an insurer backed by Apollo in July announced plans to buy Pensions Insurance Company, which was followed later that month by Brookfield agreeing a £2.4bn deal for life insurer Just Group.
That month, L&G also struck a private credit partnership with Blackstone, in which the US alternative-assets group will source deals for the FTSE 100 company’s annuities business. Blackstone said the partnership could be worth up to $20bn by the end of the decade.
Kail said L&G did the transaction because “they have the ability to generate investment grade credit in the US better than we can and that’s really important”.
In addition to the Ford transaction, L&G has more than £10bn worth of UK PRT transactions that have either been completed or are the subject of exclusive talks this year, slightly higher than analysts’ forecasts.
Consultants expect companies in the UK to conclude £40bn to £50bn in PRT transactions annually over the next five years, though ratings company Fitch said last month the value of deals this year could drop to about £40bn, from £48bn in 2024.
That is partly owing to fewer large deals being concluded while stiffer competition and tight credit spreads — a narrow gap between corporate and government borrowing costs — has lowered the profits available to insurers on the transactions.