Paternoster set to rejoin buyout market

An improvement in the climate prompts the pension fund insurer to come out of hibernation

Paternoster, the pension fund buyout firm, is believed to be close to ending its self-imposed exile.

Its group chief executive, Ed Jervis, is thought to have been in discussion with the Financial Services Authority about writing new business and ending the firm's hibernation.

Paternoster had its "permissions varied" by the regulator this spring, which in effect suspended its ability to participate in the buyout market. The group's return is thought to have been prompted by a marked improvement in Paternoster's capital strength, while the buyout market has recently shown signs of life.

Ahead of its return, Paternoster is thought to be offering quotations on new business with a range of companies seeking to offload their pension liabilities. A return to health is likely to be marked with so-called longevity swaps – in effect insurance policies for pension funds against members living longer than expected.

Longevity swaps are less capital intensive than full-blown buyouts, making them more attractive in the current environment. It's thought that Paternoster may be close to agreeing such a deal with Deutsche Bank, which owns the closed life insurance book of Abbey Life. Deutsche is a big shareholder in Paternoster. Spokesmen for Paternoster and Deutsche Bank declined to comment.

Before its hibernation, Paternoster completed buyouts worth more than £2.7bn, making it the most active player in the sector, challenging traditional bulk annuity providers such as Legal & General.

In September – the month it tapped its backers for £5m – Mark Wood, the group's chief executive and a former Prudential executive, stepped back from the day-to-day running of the business he founded in 2005, saying: "I'm a reasonably expensive resource to be looking after the assets we have accumulated."

Earlier in the year, Paternoster broke off takeover talks with Pensions Corporation, led by the former Duke Street Capital boss Edmund Truell. Sources have said a deal between the pair remains a possibility, but unlikely at the moment. Pensions Corporation began a fresh round of capital raising from investors in September. It has since raised as much as £400m to fund new deals and is thought to be about to announce a deal with Harrods to take on more than £200m of pension liabilities. A number of other deals are said to be in the pipeline.

Lucida, the pension buyout firm, also signalled in September that there was life in the market after agreeing its first so-called buy-in deal in 18 months. It insured £500m of liabilities in the Merchant Navy Officers Pension Fund, following an £80m cash injection by its parent, Ceberus.

The year's largest longevity deal was struck by the Goldman Sachs-backed group Rothesay Life, which insured £1.9bn of RSA's pension liabilities in July. Legal & General, the UK's largest bulk annuities provider, plans to enter the market in the first quarter of 2010 and is thought to have already offered quotes to interested clients.