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RSA Insurance Group's deal with Goldman Sachs represents the first 'synthetic' pension scheme buy-in

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RSA Insurance Group has taken action to reduce its pension schemes' exposure to longevity and market risk by insuring 1.9 billion of scheme liabilities with Goldman Sachs.

The transaction with Goldman Sachs and Rothesay Life, covering a third of the group's total UK pension schemes, will allow the schemes to take advantage of market conditions, enhance returns and limit inflation.

The transaction means no change to the risk profile of the schemes' assets and is similar to a buy-in contract only with significantly enhanced security.

Andy Haste, group CEO of RSA Insurance Group, said: "We are pleased to have worked with the trustees to deliver a strong solution which takes advantage of market conditions. Following the action taken in previous years, the schemes were strongly positioned to achieve this next step with such solid security. This transaction further de-risks the impact of the UK pension schemes on the group's results and balance sheet."

Matthew Furniss, senior consultant at consulting actuaries Punter Southall, said: "The RSA Insurance Group deal with Goldman Sachs and Goldman Sachs' Rothesay Life unit today represents the first synthetic or ‘DIY' pension scheme buy-in. It has effectively removed part of the scheme's unrewarded risks (interest rate, inflation, and longevity) through a series of swap contracts.

"This type of action has the potential to become a viable alternative for many schemes to the standard buy-out or buy-in, particularly given the recent increases in buyout prices observed and the hit on pension schemes' asset values following falls in equity markets. A core benefit from deals such as this is that schemes do not have to hand over large amounts of assets upfront, ensuring that they can de-risk immediately while at the same time maintaining control of the scheme's assets.  But in considering such a move, trustees need to take clear advice on the design and pricing of swaps particularly in comparison with buy-out prices and scheme funding reserves."