Written by Laura Blows
Laura Blows finds out why UK-based Legal & General has set its sights on the Irish market
Having been an established, leading player in the UK de-risking market, Legal & General is now taking its annuity expertise across the water to Ireland, through its exclusive partnership agreement with New Ireland Assurance to reinsure €136 million of New Ireland’s existing annuity business, as well as a proportion of its future business.
The reinsurance arrangement covers annuities purchased by individual customers and bulk annuities purchased by Irish pension schemes. According to Legal & General’s head of bulk annuities and longevity insurance Tom Ground, he understands that New Ireland has around 25 per cent of the Irish annuity market.
Annuity market figures for Ireland in 2011 put the total market volume for bulk annuities at €165 million and around €470 million for individual annuities. Therefore, Ground says, Legal & General will insure a sizeable percentage of these transactions making it a very attractive partnership for Legal & General.
These are substantial numbers, making this a significant arrangement for the Irish market and such partnerships between respected international financial services groups and Ireland’s own domestic companies, are welcomed. Ground says: “This arrangement evidences further international confidence in the recovery of the Irish economy.”
Also commenting on the deal, New Ireland Assurance head of group risk and annuities Elaine Spillane says: “The Irish market is seeing strong demand both from individuals retiring and from pension schemes and their corporate sponsors who are seeking to de-risk.”
This view is echoed by Legal & General’s annuity business managing director Kerrigan Procter, whose ambition is to build an international presence for the annuity business. He also says that the “Irish annuity market for both bulk and individual annuities looks set to expand over the next few years”.
Legal & General and New Ireland expect the volume of Ireland’s bulk and individual annuities market to expand. Ground estimates that the Irish pensions de-risking market is just about to experience some of the same factors that caused the UK market to expand, and could have a similar growth pattern. One of the main causes of Legal & General’s expectation of increased de-risking is the experience of Waterford Crystal.
In 2009, Waterford Crystal and its pension fund became insolvent with deficits of over €100 million. Workers were told that at the time they would receive only between 18 per cent and 28 per cent of their full pension entitlements. The European Case was taken by Unite under the 2008 EU Insolvency Directive, with the union arguing that Ireland failed to establish a fund to protect employee entitlements.
The European Court of Justice (ECJ) ruled in favour of Waterford Crystal workers in their case relating to the loss of pensions following the company’s insolvency. Up to 1,500 workers could benefit from the ruling and the case could cost the government up to €280 million.
As a result, the ruling could have implications for other employees who have suffered from pension losses in similar situations, meaning the Irish government may have substantial sums to fund in order to meet any liabilities the ECJ rules it to have. A cost that may well be passed onto companies, Ground predicts, necessitating the need for de-risking.
Ireland may have been the first place outside the UK for Legal & General to expand, but the company has other horizons in its sights.
It highlights the business potential of the Netherlands, with its €0.9 trillion of DB pension liabilities and legislative changes encouraging an increase in de-risking deals, and the US and Canada with its well-established pensions landscape, as possible areas of expansion for Legal & General. Watch this space.
Laura blows is Editor, European Pensions