Risk averse firms strike deals

Sophisticated pensions deals with insurance firms will become more attractive to food manufacturers as the credit crunch continues to make companies more risk averse, according to pensions advisory firm KPMG.

Ben McDonald, pensions partner at KPMG, recently led the advice on a speedy and unusual deal, which was struck to halve Dairy Crest's pension liabilities, which stood at £658M.

Dairy Crest was forced to reduce its debt after seeing the value of its shares dive from a high of 740p in July 2007 to a low of 168p on December 2, 2008.

McDonald said the deal was "slightly different to many others" because its insurer had only insured part of the pensioner liabilities, and it was completed a few weeks after receiving a suitable insurance quotation.

The deal cost Dairy Crest £150M and was made with pension provider and insurance company Legal & General.

David Felder, chairman of the trustees, said: "This buy-in is a key step towards reducing the overall investment and actuarial volatility faced by the fund and is part of an ongoing programme of seeking routes which will reduce our overall pension risk."

Dairy Crest said that the policy will provide insurance protection to cover it against both financial and demographic pension risks, in particular members living longer than expected.

McDonald added that the only other deal that had been made between a food manufacturer and an insurance firm of this size was between one of Scotland's oldest whisky distillers - Morrison Bowmore Distillers - and Paternoster in March last year.

"By the nature of the food manufacturing sector, entering a pension deal with an insurance company is becoming increasingly attractive. Pensions deficits and liabilities are increasing, and something which is unique to the industry, is that factories are now more automated. Where companies have reduced the numbers of employees due to automation, there is a shortage of people contributing to the pension pot," he added.