Standard Life partners with Goldman Sachs and CVC to fuel pension risk transfer business

Standard Life has struck a deal with a group of global finance giants including CVC and Goldman Sachs in a bid to accelerate its push into the booming pension risk transfer market.

The FTSE 100 group has joined forces with a CVC-led consortium, which also includes insurer Prudential, to commit as much as £2bn over the next five years. The sum includes £500m from Standard Life, which the insurer expects to fund from its annual excess cash generation. 

Standard Life will control 51 per cent of the voting rights in the partnership group.

Pension risk transfers involve a company or pension scheme moving the financial responsibility of a defined benefit pension plan to a third party, typically an insurer. Dealmaking in the sector has been booming in recent years as corporate pension schemes have swung into surplus and firms have looked to offload risk.

Swallowing up schemes

By teaming up with Wall Street titans, Standard Life will receive major cash reserves needed to win some of the UK’s largest corporate pension deals. This will assist the firm in taking control and taking on the financial duty of paying out to retirees.

The partner groups are expected to supply high-yielding global investments, allowing the insurer to generate better returns and offer pension trustees more competitive prices.

Andy Briggs, chief executive of Standard Life, said: “By bringing together our comprehensive pension risk transfer capabilities with our partners’ specialist private markets capabilities and significant capital resources… we will be able to offer trustees and sponsors for the largest pension schemes an alternative to secure the pensions of their members across the UK.”

String of tie-ups

Standard Life’s deal is the latest tie-up of UK insurers and private capital firms who have been eyeing Britain’s £1.3 trillion pension buyout sector.

The market has surged in recent years after higher interest rates reduced the value of plan liabilities, making purchases more affordable.

Last summer, insurers backed by Brookfield and Apollo Global Management completed acquisitions valued at £7.8bn.

Standard Life rival, Legal & General, also struck a £14.6bn deal with Blackstone to expand its private credit business.

Peter Rutland, president of CVC, said the new deal with Standard Life would build on CVC’s experience in the UK PRT market “through a new, long-term capital commitment”.

“The partnership is ideally suited to CVC’s insurance asset management franchise and credit origination capabilities,” he added.

But the spike in interest in the risk-transfer industry has caught the attention of regulators and the Bank of England. Earlier this year the central bank began to clamp down on funded reinsurance, a tool used by firms including L&G and Standard Life. 

It is an arrangement where a UK life insurer pays a large upfront premium to an offshore reinsurer to take on pension and annuity risks. Regulators fear this could take funds away from the domestic economy and under-price capital.