Goldman Sachs Strikes Deal With Pension Buyout Specialist

(January 12, 2011) – Goldman Sachs’s insurance arm Rothesay Life has formed a deal with the pension buyout specialist Paternoster.

The deal reflects a desire by Goldman to gain access to liquidity as well as pension risk and assets, reflecting a renewed commitment by the US bank to the pensions buyout venture it launched in 2007. Some industry analysts have asserted that the bank’s purchase may be a sign of market recovery.

Goldman Sachs noted that Rothesay Life, its existing insurance subsidiary, and Paternoster would be handled as separate insurance companies in the short-term. In the long-term, however, the bank expressed plans to eventually combine the two, subject to regulation.

Goldman Sachs paid $407 million for the pension insurer, nearly doubling Goldman’s $4.7 billion insurance business in the UK. Paternoster is now a 100%-owned subsidiary of Goldman Sachs, and the acquisition of Paternoster provides the bank with a book worth $4.7 billion in addition to the more than $6 billion of deals it has already signed.

“This is not a deal aimed at making cost savings,” said Rothesay’s chief executive Addy Loudiadis to Financial News. It is a deal aimed at doubling our book of business and positioning us for further growth.” Loudiadis added that the deal offers an opportunity for Rothesay to mature by doubling the company’s size and capabilities.

The Paternoster board announced that it “believes that this transaction would create an excellent combination to exploit the opportunities in the growing bulk annuity market and enhance the long term security of its policyholders.” Rothesay is now targeting about $16 billion of assets under management – expansion that could come in the form of further acquisitions or through two more large deals, the Financial Times reported. With deals for British Airways and RSA, the insurer, Rothesay has completed some of the largest longevity trades in the UK.

The completion of the Goldman deal with Paternoster comes just a month after it was first announced.