Buy-in transactions can boost sponsors’ share prices, says Aon

Bulk annuity transactions are linked to positive share price movements for UK-listed sponsors, even when they are buy-ins rather than full buyouts, according to analysis from Aon.

The consultancy noted that almost all UK-sponsored transactions in the sample were announced as buy-ins rather than buyouts, suggesting it may not be necessary to fully remove liabilities from the balance sheet for the deal to be positively received by markets.

Aon said companies weighing endgame options could consider this finding when considering how to structure and communicate future transactions.

The consultancy analysed bulk annuity deals worth more than £500m involving UK sponsors over the past 20 years. After excluding deals without public announcements, transactions announced alongside wider company updates and cases of self-insurance within the sponsor group, Aon identified 37 transactions involving UK-listed companies.

It found that the sponsor’s share price outperformed the FTSE 100 in 81% of cases on the day the transaction was announced. The average outperformance was 1.2%.

Aon said its statistical analysis showed less than a 0.05% chance the result was random, giving it more than 99.95% confidence that, historically, sponsors’ share prices outperformed the FTSE 100 on the selected announcement days.

John Baines, senior partner in the risk settlement team at Aon in the UK, said: “At a time when many UK companies are considering their pension strategies, this new paper, which shows the positive correlation between insurance and shareholder reaction, is an important new piece of information.

“With this understanding of how bulk annuity deals can positively impact share price, we expect an increased focus on how endgame strategies are communicated to shareholders.”

Overseas sponsors are the exception to the rule

The trend was less clear for schemes with overseas sponsors. Aon analysed 23 transactions worth more than £1bn involving overseas sponsors and found average share price outperformance against the relevant primary stock market index was close to zero.

The consultancy said this may be due to the fact that many UK pension insurance transactions are announced mainly by insurers in the UK or pensions-specific media, meaning they may be less visible to overseas analysts. UK pension schemes may also be less material in the accounts of overseas parent companies, or less well understood by overseas investors.

Aon said this could prompt some overseas companies to focus more closely on how UK transactions are communicated to shareholders and analysts outside the UK.