More than 80% of UK businesses that had completed significant pension insurance transactions outperformed the FTSE 100 on the day of announcement, according to analysis by Aon.
Aon’s analysis of 37 bulk annuity transactions worth more than £500m with UK-listed companies found that on the day of announcement, 81% of sponsors’ share prices outperformed the FTSE 100 by an average of 1.2%.
One potential explanation, according to the analysis, was that investors in UK businesses reacted positively on the day of announcement, for example, when pension risk was removed from the corporate balance sheet.
The analysis could help companies to understand the correlation between insurance transactions and share prices.
In contrast, there was far less evidence that such a trend persisted for schemes with overseas sponsors, with the average outperformance on the day of announcement close to zero.
The paper said it expected the analysis, relative to UK analysis, could cause some overseas companies to focus more on how UK transactions are communicated to shareholders and analysts outside of the UK.
Aon senior partner in the risk settlement team, John Baines, 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.”
The paper said that, following the analysis, it expected more companies to take an active interest in how transactions are communicated to the media and shareholders, and particularly in the context of their wider shareholder communication strategy.
Baines added: “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.”
