By Simon Miller
Consultant Hymans Robertson predicts that Q2 2011 looks set for a record number of pension scheme de-risking.
In 2010, £4.5bn risk transfer deals were completed according to Hymans’ Managing Pension Scheme Risk Report Q1 2011.
The first quarter of 2011 saw £350m of risk transfer deals completed and comprised of buy-ins, buy-outs and longevity swaps.
The survey found that “several multi-billion pound by-in deals” were currently testing the market and with several potentially significant longevity swap deals reaching exclusivity stage, some material longevity swap transactions are expected to complete within the next six months
Hymans said that insurance companies and banks have taken on the risks associated with around £30bn of pension scheme liabilities since 2006/2007 and this is expected to rise to £50bn before the end of 2012 with enhanced buy-ins, which make use of impaired life annuities, ballooning in popularity given their ability to significantly reduce the buy-in cost for many UK pension schemes
As reported last week, the London Stock Exchange Group completed a £203m buy-in to insure all its pensioner liabilities with Pension Insurance Corporation (PIC), with the added feature that PIC will automatically insure non-pensioner members as they reach retirement.
The deal saw the London Stock Exchange Group become the 19th FTSE 350 company to complete a material risk transfer deal for its pension scheme
Hymans Robertson expects one in four FTSE 100 companies to complete a material pension scheme risk transfer deal before the end of 2012 with members of defined benefit pension schemes will increasingly rely on insurance companies and banks to provide their pensions
James Mullins, head of buy-out solutions, at Hymans Robertson, commented: “Our analysis illustrates that it won’t be long before £50bn of pension scheme risk has been transferred to insurance companies and banks. 2010 was the third successive year during which £8bn of pension scheme risks were transferred via buy-ins, buy-outs and longevity swap deals. 2011 is likely to see a substantial increase above these levels.”
The report also showed that the market for buy-in/buy-outs during the year to 31 March 2011 was dominated by Rothesay Life, Aviva, PIC, Prudential, Legal & General, MetLife and Lucida. Rothesay Life led the field with over 30% of market share, by value, during the year to 31 March 2011.