Will L&G becoming an “agent”of Blackstone
This article asks questions about about the transfer of Pension Risk to America.
PRT stands for Pension Risk Transfer. Where there is risk there is profit as well as danger. The profit from transferring the assets of our private pension markets backing defined benefit pension promises is “not so” British as we might think.
Read on…
Legal & General has announced deals that will take it way beyond anyone else in terms of Pension Risk transferred.
On the face of it, this looks like a British deal between British employers and a British Insurer, this is Andrew Kail speaking on behalf of L&G
“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.
But is “PRT” a British business?
Look at the chart to discover teeny Utmost (owned by a Brookfield subsidiary,like Just ) and the mighty PIC (owned by Athora- a subsidiary of Apollo) aren’t British anymore.
All that American purchasing happened in July, a golden month for American private capital. 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.
Kail said L&G did the transaction because
“they (Blackstone) have the ability to generate investment grade credit in the US better than we can and that’s really important”.
Our institutional regulator (the Bank of England’s insurance regulator) the PRA is questioning just how “secure” the deals done with American institutions through funded reinsurance is.
One view is that British insurers are good at sailing deals down to the ports from where they are shipped to Bermuda. This is cheap for sponsors like Ford and profitable for insurers (the deal makers like L&G, Just, POC and Utmost) , but the bulk of the risk – in terms of profit as well as danger – ends in Bermuda and the States.
Are British insurers becoming little more than agents for American behemoths, are American behemoths supporting the UK economy? Or are they supporting another’s?
The FT report continue to report risk transfers ahead, and not American companies to American owned insurers. But there’s no doubt it’s deals like Ford’s which are easiest to be done. The £4.6bn deal with the ultimately American owned Ford, is not quite the British deal it looks. Blackstone’s private credit partnership with L&G, sees the US alternative-assets group sourcing deals for the FTSE 100 company’s annuity business.
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. So is it an exchange of one set of US employer risks with another set of risks associated with the American capital backing the L&G deal?
In July , L&G Blackstone said the partnership could be worth up to $20bn by the end of the decade. This morning we see a big deal for L&G and presumably Blackstone.
This is the not so British buy-out
The FT report
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.
My conversations with UK insurers suggest they have trouble getting the money together to do profitable deals. The FT confirm problems that where we are not using America/Bermudian money, the deals are getting stuck. But there are other matters…
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.
The spread between the cost of Government and private borrowing is small in the UK (not so small on the other side of the pond) and there’s this ill-defined “competition”. I’d like to think that is the UK superfund market fighting back either through Clara and other pretenders to that role.
Competition from patriotic ambition?
I suspect that another competitor to shipping the money off to America, is our desire to keep capital in the UK, invested in pensions- not locked up in funded transatlantic reinsurance policies. That’s “competition” that strengthens not drains Britain.
I hope that more defined benefit pension schemes in the UK will find ways to run on with profits from asset management and sensible liability management ensuring that it is British and not American/Bermudian capital that pays our retirement income.
That British Capital from pensions ensures that further generations of pensioners look forward to good pensions paid from collective and ambitious investment in our economy.
