PIC reports 2015 new business of £3.5bn following Philips buyout

Pension Insurance Corporation has reported £3.5 billion of new business written to date in 2015, underlining the impact of its circa £2.4 billion full buyout of the Philips UK Pension Fund on its growth trajectory and balance sheet scale. The Philips transaction, PIC’s largest ever full buyout, takes its assets under management to more than £16 billion and materially deepens its role in the UK pension risk transfer market.

The Philips deal covers the pension benefits of around 26,000 UK pension scheme members, reinforcing PIC’s positioning in complex, large-scheme de-risking where execution and counterparty resilience are central to trustee decision-making. David Jordan, Chairman of Trustees of the Philips UK Pension Fund, described it as “a complex transaction given the size and history of the Fund”, highlighting the governance and structuring work required to move a long-established scheme to full buyout.

A key structural feature is the simultaneous reinsurance of the longevity risk by PIC with Hannover Re, embedding risk transfer to the global reinsurance market directly into the buyout solution. For insurers, this illustrates the continued use of back-to-back longevity reinsurance to manage capital and earnings volatility on large transactions, and the importance of reinsurance capacity as deal sizes increase.

Jay Shah, Head of Origination at PIC, characterised 2015 as “a very successful year so far” with £3.5 billion of new business written to date, showing strong demand from sponsors and trustees for de-risking solutions and PIC’s ability to convert pipeline into executed premiums. The Philips mandate sits alongside new pension insurance business for clients including Panasonic and the PLSA, contributing to total 2015 new pension insurance business of £3.8 billion of premiums. For asset managers and structuring banks, this breadth of counterparties points to a diversified flow of assets and hedging requirements rather than reliance on a single mega-transaction.

PIC’s audited results for the 12 months to 31 December 2015, announced on 24 March 2016, show how this new business is feeding through to the balance sheet and P&L. Group financial investments under management reached £16.6 billion at year end 2015, up from £13.8 billion in 2014, confirming that the Philips buyout and other transactions are translating into rapid growth in invested assets. At the same date, PIC had insured 132,100 pension fund members, reflecting the cumulative scale of its bulk annuity and buyout book and the associated long-dated liability profile that must be matched and hedged.

On the earnings side, PIC reported IFRS operating profit before tax of £188 million for 2015, up 22% from £154 million in 2014, indicating that growth in premiums is being converted into operating profitability under its current investment and risk management model. For capital managers, this combination of volume growth and rising operating profit suggests that PIC’s asset strategy and hedging approach are supporting both spread capture and risk control at current pricing levels.

From a solvency perspective, PIC reported a Solvency II solvency capital ratio of 151% at year end 2015, providing a buffer to support further bulk annuity origination and to absorb the capital strain of large, complex transactions such as Philips. The use of simultaneous longevity reinsurance with Hannover Re in the Philips deal will be a key component of how that solvency position is maintained while writing sizeable new business.

Momentum has continued into the following year, with £900 million of premiums written in the first quarter of 2016, showing that the 2015 pipeline has not exhausted demand and that PIC remains an active buyer of long-dated assets to support new liabilities. For investment teams, this implies ongoing demand for credit, illiquid and liability-matching assets, as well as continued use of derivatives and reinsurance to manage interest rate, inflation and longevity exposures.

For insurers and asset managers alike, the Philips buyout and associated 2015 results show that scale transactions, backed by reinsurance and a strong solvency position, are reshaping PIC’s asset base and creating sustained demand for long-duration, capital-efficient investments.

--- Sources: https://www.pensioncorporation.com https://www.pensioncorporation.com/news-insights/press-releases/2015/pic-insures-philips-pension-fund-in-largest-full-buyout https://www.pensioncorporation.com/content/dam/pic/corporate/documents/investors/-pic-and-picg-financial-results-and-reports/results/2015/press-release-pic-results-2015-final.pdf.downloadasset.pdf