Home ListingNovember 5, 2015

Philips Seals UK’s Biggest-Ever Full Buyout

The £2.4 billion deal follows two smaller buy-ins and a related risk-transfer arrangement in the US.

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Pension Insurance Corporation (PIC) has insured the entirety of razor and personal care company Philips’ UK pension fund in a £2.4 billion ($3.7 billion) transaction.

The deal is the biggest single buyout in the UK, PIC said. The specialist insurer has also sealed a longevity swap with German reinsurer Hannover Re, covering the majority of the £2.4 billion transferred. A spokesperson for PIC said the longevity swap covered non-retired as well as retired members.

“Our hope is that Philips will provide an example of how you can reach a successful ‘endgame’ even when the overall environment is tough.” —Sebastian Schulze, RedingtonThe buyout concluded a multi-year de-risking process for Philips’ pension, which included two smaller buy-ins in 2013 and 2014. The first saw Rothesay Life take on £484 million of liabilities, followed by Prudential insuring £300 million.

James Mullins, partner at Hymans Robertson, an advisor to Philips during the 2013 stage of the de-risking, said the initial transaction with Rothesay Life “allowed the scheme to put in place the governance needed to quickly capture future buy-in pricing opportunities”.

“This sent a strong signal to insurers of Philips’ seriousness to complete successive buy-in transactions on its road to a full buyout,” Mullins said. “This strategy ensured that Philips became the ‘go to’ pension fund for insurers to approach… The result means the fund has achieved full insurance for all its members at competitive pricing levels—a great outcome for everyone involved with the fund.”

Sebastian Schulze, senior vice president in investment consulting at Redington and a consultant to Philips, said the pension’s “clear journey plan” and “rigorous risk management” helped prepare for de-risking despite the “very challenging market conditions”. He cited tackling interest rate and inflation risk as particularly important.

“Our hope is that Philips will provide an example for the wider UK pensions industry of how you can reach a successful ‘endgame’ even when the overall environment is tough,” Schulze added.

The transaction between Philips and PIC covered roughly 26,000 members of the UK pension. It brought PIC’s 2015 new business total to £3.5 billion, and pushed its total assets under management above £16 billion.

Jay Shah, head of origination at PIC, said multi-national companies such as Netherlands-based Philips were “increasingly” looking at similar pension de-risking projects. “It is becoming part and parcel of modern commercial thinking,” he said.

At the start of last month, Philips offloaded $1.1 billion of US pension liabilities to Prudential, Legal & General America, and OneAmerica.

US car parts manufacturer TRW last year completed a complex de-risking deal, involving its UK, US, and Canadian pension funds.

This month’s issue of Chief Investment Officer will feature a detailed look at how such transactions take shape. Register now to receive your copy.