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Pension risk transfer deals could top £9bn before year end

The consultant also predicts a significant number of risk transfer deals are likely to close in the fourth quarter - making 2011 a record year for scheme de-risking with deals potentially topping £9bn.

Analysis of the market found the £1.1bn Turner & Newall buy-in with Legal & General was the largest ever. The third quarter Home Retail Group £280m buy-in with Prudential was also highlighted.

Hymans Robertson partner and head of buyout solutions James Mullins (pictured) said schemes are increasingly viewing buy-in deals as an investment strategy decision, particularly in the current market.

He explained: "Many pension schemes are reviewing their government gilt holdings, which provide quite a good match for pensioner liabilities, given the option to exchange some of their government gilts for a buy-in policy, which provides a near perfect match for pensioner liabilities, and at a potentially lower cost. This pricing dynamic is one of the few positives for UK pension schemes following the market turmoil since the summer of 2011."

Other notable deals included ITV becoming the eleventh FTSE100 company to complete a material risk transfer deal with its scheme, when it completed a £1.7bn longevity swap deal with Credit Suisse.

Hymans said it was the third-largest pension scheme risk transfer deal and the largest since BMW's £3bn longevity swap in February 2010.

Longevity swaps have removed £9bn of scheme liabilities since they took off in 2009.

The third quarter of 2011 saw more than £2bn of pension scheme risk transfer deals, with £350m of insured buy-in/buyout deals in addition to the ITV longevity swap.

Mullins said he expected next year to be "as buoyant as 2011" as schemes will continue to engage in buy-ins and longevity swaps.

He added: "Providers will continue to ramp up their efforts to meet this demand which is likely to see insurance companies and banks take on up to £50bn of pension scheme liabilities before the end of 2012.

"As long as banks and insurers continue to provide a flexible approach to make these risk transfers feasible and affordable to all pension schemes, we will see more deals in the pipeline and indeed more insurance companies looking to enter into this market."

The consultant said Nomura, Friends Life and other insurance companies are set to enter the market next year.


Buy-outs/buy-ins - No. of deals completed

Provider No of deals Q4 2010  No of deals Q1 2011 No of deals Q2 2011 No of deals Q3 2011 Total no of deals (Year to 30/9/ 2011) 
Aviva  12  13  6 7  38
Legal & General   37   21  24   15  97
Lucida***  -  -  -  -  -
MetLife*  5  3  5  7  20
Pension Insurance Corporation  -  3  4  2  9
Prudential  1  -  1  **  2
Rothesay Life  -  1  -  1  2
Total  55  41   40  32 168


Buy-outs/buy-ins - Value of deals completed

Provider Value of deals Q4 2010 Value of deals Q1 2011 Value of deals Q2 2011 Value of deals Q3 2011  Total value of deals (Year to 30/9/ 2011)
Aviva  £327m   £139m  £169m  £34m  £669m
Legal & General  £360m  £23m  £213m   £25m   £621m
Lucida***  -  -  -  -  -
MetLife*  £50m  £30m  £277m   £88m  £445m
Pension Insurance Corporation  -  £89m  £426m  £57m  £572m
Prudential  £892m  -  £280m  **  £1,172m
Rothesay Life  -  £65m  -  £150m  £215m
Total  £1,629m  £346m  £1,365m   £354m £3,694m


Source: Hymans Robertson

* MetLife figures include deals for Alico (formerly AIG) following MetLife's acquisition of Alico, completed on 1 November, 2010.
** Prudential's Q3 2011 figures are not due to be published until 2012. We do not expect their figures to materially affect the above totals.
*** Figures for Lucida exclude transactions with organisations that are not UK pension schemes.

 

Longevity swaps - No. of deals completed

Provider  No of deals  2009 No of deals  2010 No of deals Q1 2011 No of deals Q2 2011  No of deals  Q3 2011 Total longevity swap deals
Credit Suisse  3  -  -  -  1  4
Rothesay Life (Goldman Sachs)  2  -  -  -  -  2
Swiss Re  1  -  -  -  -  1
Abbey Life (Deutsche Bank)  -  1  -  -  -  1
JP Morgan  -  -  1  -  -  1
Total  6  1  1  0  1  9


Longevity swaps - Value of deals completed

Provider Value of deals 2009 Value of deals 2010  Value of deals Q1 2011  Value of deals Q2 2011 Value of deals Q3 2011 Total value of longevity swap deals
Credit Suisse   1.2bn  -  -  -  1.7bn  2.9bn
Rothesay Life (Goldman Sachs)  1.9bn  -  -  -  -  1.9bn
Swiss Re  1bn  -  -  -  -  1bn
Abbey Life (Deutsche Bank)  - 3bn  -  -  -  3bn
JP Morgan  -  -  0.1bn  -  -  0.1bn
Total  4.1bn    3bn  0.1bn  0  1.7bn 8.9bn

Source: Hymans Robertson

 

 

Source: Professional Pensions