Rothsay Life gears up for a potential £3bn IPO

Construction workers are still putting the finishing touches on the Leadenhall Building, the City of London high-rise nicknamed the Cheesegrater.

But Rothesay Life has already moved in, weeks before other tenants. The pensions insurer set up by Goldman Sachs has chosen the 47-floor landmark to be its new headquarters - a symbol of its ambitions as the business gears up for a potential £3bn listing.

In an interview interrupted by occasional drilling, Addy Loudiadis, the insurer's cerebral Anglo-Greek co-founder, sets out how she is readying the fast-growing business for the public markets.

The mother-of-two established Rothesay eight years ago after cutting her teeth as a banker at Goldman, where she gained experience arranging complex derivatives deals.

Since then Rothesay has become a big force in the "bulk annuity" industry. Companies have turned to it to lift headaches caused by their volatile pensions liabilities in return for a fee.

After striking a series of pensions megadeals, Rothesay now insures the lives of almost 200,000 people. Last year alone it paid £700m worth of pensions.

Yet a listing would come just as analysts are warning about increased competition.

The life assurance sector is being shaken up by chancellor George Osborne's overhaul of the pensions regime, which has caused sales of individual annuities to collapse.

To make up the shortfall, mainstream insurers have piled in to the corporate market, which Rothesay specialises in along with rival Pension Insurance Corporation.

James Mullins, partner at the pensions consultants Hymans Robertson, is expecting more insurers to enter the bulk annuity market this year, which "will dramatically increase competition and push down prices".

Ms Loudiadis, 50, says 2014 was "probably our worst competition year" for Rothesay. Yet she adds its returns were nevertheless "spectacular" and forecasts the market will continue to grow.

The company is set to publish annual results on Monday showing a 33 per cent jump in annual pre-tax profits to £244m. "The UK is one large pension fund, with a couple of banks and aeroplanes," she says. "There's enough supply."

Rothesay's chief points out that companies have been striking pensions insurance deals even when interest rates have been at rock bottom, making the transactions relatively more expensive for them. "If rates were up another per cent or two, there would be a floodgate."

Bulk annuity providers bear two big types of risks: that the assets that back the payouts generate weaker returns than expected, and that pensioners live longer than forecast.

"This is not a very easy business - you really need to know what you're doing. We are disciplined about our return. We don't chase business," says Ms Loudiadis.

Although born in Nigeria to Greek parents, Ms Loudiadis attended Cheltenham Ladies College and has spent most of her life in Britain. After joining Goldman in 1994 she climbed up the ranks, becoming a partner and co-head of its European investment banking division.

In 2001, the Oxford maths graduate helped Greece meet European deficit rules by arranging a derivatives deal years before the country's debt crisis.

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Rothesay's insured pensioners are forecast to live 17 years beyond retirement. An unexpected leap forward in longevity would hurt the company's profits.

Still, by reinsuring about 70 per cent of the life expectancy risks it has taken on, the group has shielded shareholders from the brunt of them. The group also has a conservative investment strategy.

And Rothesay has thrived while its rivals have run into trouble. Lucida, set up by former Prudential chief executive Jonathan Bloomer, warned of "unattractive economics" of pensions de-risking before selling itself to Rothesay's FTSE 100-listed competitor Legal & General.

Part of the answer is to be bigger, Ms Loudiadis believes.

Already Rothesay itself has snapped up two of its largest rivals: Paternoster, run by another ex-Pru executive Mark Wood, and the UK bulk annuity arm of MetLife, the US insurer.

She indicates Rothesay may acquire more businesses shaken out of the industry by so-called Solvency II capital requirements that regulators are forcing on insurers next year.

"There are opportunities out there which could double our size," she says.

Ms Loudiadis would like Rothesay - whose other shareholders include Singapore's sovereign wealth fund and investment house Blackstone - to increase its assets under management from £13bn to at least £15bn before floating.

"Scale does matter here. We would like another year [before listing], where we have the chance to prove categorically that we're profitable, and we're consistent," she says.

However, she adds: "Our job is to make sure that our shareholders have that [flotation] option - that if they do want liquidity, we are IPO-ready."

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