Insurance companies are calling on an unusual source to help them complete a variety of tasks, according to a report.
Paul Golden, writing for Global Investor
, claims that transition managers are being called on for everything from importing assets for bulk annuities to investing excess capital.
Typically, he states, insurance companies were less likely to use transition managers compared to other institutional investors – but now that appears to be changing with the benefits of engaging with external managers shining through.
Alyssa Manning, director of pension risk transfer at Legal & General, tells the publication that with bulk annuity transactions, insurance companies are taking on pension schemes that usually sit on a firm’s balance sheet.
“Many of these pension schemes have different investment strategies to insurance companies,” she claims. “When we think about taking in these assets, it is often quite challenging because the scheme is looking to move potentially billions of pounds of assets at one time. We are looking to convert that cash into assets, so we have to charge for transaction costs and transition risk.”
It is suggested that market may be entering a trend in which pension schemes take on the risk themselves instead of paying a premium on to the insurer for the transaction risk. Manning suggests this gives transition managers the chance to act on behalf of a pension scheme while still under the guidance of an insurer.
Involving a transition manager is seen as helpful in terms of ensuring there are high levels of transparency and control over processes with Manning advising insurers to engage with a transition manager as soon as possible.
“Talking to a manager before you set a credit portfolio is useful because they will have a more comprehensive view of the market than an insurer and their feedback around what is achievable is invaluable,” she states to Global Investor. “The other advantage of early engagement is that once the transition manager is aware of the reasons why the transition is taking place, they can identify opportunities to increase the certainty and/or potentially reduce the cost of the project.”
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