Paternoster chief executive Mark Wood has denied suggestions that capital constraints are forcing the firm to shy away from new business.
Wood admits Paternoster is taking a far more cautious approach to new business but says this is a result of difficulties agreeing the price of pension scheme assets with trustees.
He says: “We are very cautious about the amount of new business but it is not really driven by capital, it is more about the uncertainties of how you price the assets when they come across. Trustees think we are overcharging but we think we are undercharging, given the default risk that is implicit in a lot of portfolios.”
It has been suggested that the firm is using capital earmarked for new business to shore up its default reserves against the corporate bonds backing its existing book of bulk annuities after the FSA called for insurers to stress-test their balance sheets last month.
But Wood says: “By our calculations, we have been a little bit more prudent in our reserves for defaults than Legal & General, for example, although L&G has a different credit risk to us, so it is difficult to be precise. Indeed, as we can see by comparing our position with other quoted companies, we are definitely in the right ballpark in terms of our reserving levels.”