Britannic Assurance Moves into Bonds

December 27, 2004 ( - British life insurance giant Britannic Assurance has moved two-thirds of its pension money from equities to bonds, a move that might be followed by other large pension plans and bring to a halt the recent rise of the FTSE 100.

The Financial Times (FT) reported that Britannic, which previously held 41% of its 1.12 billion pound pension fund in UK equities and 27% in foreign equities, has moved a large portion of its funds into bonds. With a 757.2 million pound equity sale, the fund now has 15.2% in real estate and the rest in gilts and corporate bonds, the FT reported.

According to Paul Thompson, CEO of Britannic, the switch was made last month, the FT reported. He has pointed out that the only risk to the firm’s funds is now credit risk, as well as worker longevity. Ninety-percent of those covered by the firm’s pension scheme are retired, which was a catalyst for the move. Another reason that the company decided to switch its asset allocation is that it believes that the equity markets have returned to “a sensible level,” according to the FT.

Britannic is advised by actuarial firm Hewitt Bacon Woodrow, which famously advised rival pension firm Boots to move to 100% bonds in 2001. It later backed off, saying that the retailer should move some of its pension funds in equities this summer (See So Much For Immunization: Boots Socks Total Bond Allocation ). The move was a significant turnaround for the company.  In 2001, the company’s then head of corporate finance, John Ralfe , said such a move was necessary to ensure pension payments regardless of movements in the markets (See  Boots Walks Away From UK Equities ).  Ralfe, who now acts as an independent consultant to the pension industry, said the trustees’ decision to move back into equities increases the riskiness of beneficiaries’ portfolios without any obvious upside.    

The move by Britannic may signal a shift back to bond allocation in the UK, which might put a brake on the rise of the FTSE 100, according to the report.