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Paternoster to receive GBP5m capital investment from shareholders

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Paternoster, an insurance company that takes responsibility for the risks associated with companies’ defined benefit pension schemes, is to receive GBP5m of new capital from its shareholders.

The investment will ensure the company retains the capability to write new business once it has raised further money or when there is significant improvement in the economic outlook. The new capital will also enable the group to assist in the rapid growth of the longevity-only risk transfer market.

Paternoster predicts greater demand in the future from companies to buy out defined benefit pensions scheme obligations as credit markets improve and a more immediate demand for longevity-only risk transfer solutions.

However, while the volume of transactions will continue to be subdued for some time and Paternoster focuses on raising more capital, the company’s headcount will reduce from 130 to 106.

Chief executive Mark Wood (pictured) is to become deputy chairman and is succeeded by Ed Jervis, previously commercial director.
 
Jervis says: “The current interest being shown by defined benefit pension trustees and their corporate sponsors in ‘longevity swaps’ illustrates the continuing focus on reducing the risks inherent in their schemes. Although credit markets have improved over recent months, the market for defined benefit pension scheme buy outs will remain subdued for some time yet. At the same time many corporate sponsors face pressure on their cash flows. As a result, pension trustees and their corporate sponsors’ desire to reduce risk will increasingly focus on longevity-only solutions. 

“Nonetheless there remains an overwhelming logic for corporate sponsors to fully transfer their pension scheme obligations from their balance sheets to an insurer, which provides solvency capital to support the promise made to pay pensions. As the risk of credit defaults diminishes and asset values improve at the same time as underlying corporate cash flows strengthen, so pension scheme buyouts will again become viable and demand must be expected to soar. These conditions will also be conducive to raising further capital.”
 
Wood adds: “Paternoster’s board and shareholders are determined that the company will remain a leader in what will once again be a rapidly growing market. Meanwhile, the proper governance of our business and of course the interests of our policyholders are of paramount importance.”

As of 31 August 2009, Paternoster has obligations in respect of 38,000 pensioners and 7,500 deferred members of 42 pension schemes in total. Trustees have secured GBP2.7bn of liabilities with Paternoster. Paternoster pays GBP13m in pension payments each month to former employees of companies such as P&O, Fiat, Texaco and Emap.

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