RSA - Insurance of pension liabilities

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Slaughter and May advised RSA Insurance Group plc ("RSA") on the insurance of pension liabilities of RSA’s two main defined benefit pension schemes (the "Schemes") totalling £1.9 billion and representing 55% of the Schemes' liabilities in respect of pensions in payment. The transaction is the largest of its kind in the UK to date - the largest previously being the Prudential/Cable & Wireless transaction on which Slaughter and May advised Prudential.

The transaction has an innovative structure involving fully collateralised asset swap and longevity insurance contracts entered into with Goldman Sachs International and Rothesay Life Limited, a specialist insurance subsidiary of Goldman Sachs.

Under the arrangements, the Schemes have removed a significant proportion of their longevity, inflation and interest rate risk. The transaction is similar in economic effect to a bulk purchase buy-in annuity contract but with enhanced security as the Schemes retain ownership of the assets supporting their liabilities. These assets are cash, gilts or other government-backed bonds reflecting the Schemes’ desire for stronger security in a post-Credit Crunch environment.

The transaction protects RSA’s balance sheet by reducing the volatility of the pension position to movements in corporate bond spreads, longevity and inflation risk.

Slaughter and May fielded an integrated team comprising specialists from its Corporate, Financing, Insurance and Pensions departments working closely with RSA and its other advisers as well as the advisers to the Schemes.

Corporate/Insurance: Jonathan Marks (partner), Andy Ryde (partner), Simon Lewis (associate), Alex Dunn (associate); Finance: Marc Hutchinson (partner), Anna Lawry (associate), James Morgan (associate), Aron Rattew (associate); Pensions: Eddie Codrington (partner); Tax: Graham Airs (partner), Richard Jeens (associate), Tom Jarvis (associate)