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The Actuary The magazine of the Institute & Faculty of Actuaries

Movers and shakers in pensions buyouts 2008

2008 has been a record year for the bulk annuity market, with a total £8.2bn of business written, up from £2.8 billion in 2007, according to research from Aon Consulting. Legal & General has leapfrogged Paternoster, which has slipped into fourth place, as the market leader by value of deals underwritten. During 2008, competition has intensified and market share has shifted considerably between the top providers. L&G has written the lion’s share, the 173 cases is almost twice the total of the other top nine firms combined. Prudential has also returned to the fore in this market, thanks to the first £1bn deal with Cable & Wireless. 2008 did, however, see the first casualty, with Synesis Life ceasing to operate.

Paul Belok, actuary at Aon Consulting, said: “While 2008 saw only a 5% increase overall in the number of cases placed, the value of those deals soared by 190%. During the year, most providers witnessed an unprecedented level of interest from defined benefit pension schemes and their sponsors. The big driver for growth was pensioner buy-ins, whereby a bulk annuity policy is secured for current pensioners and then held by the scheme as an investment (rather than individual policies being bought for members and the scheme then being wound up) — about two-thirds of the cases over £100m were on this basis. “

A healthy increase in competition resulted in a more balanced spread of business among the providers. We have started to see different strategies emerge, with some providers focused on doing a small handful of big deals, and others interested in smaller cases but greater volumes. “The future is not as bright as one might expect from a market that has grown so rapidly. The fourth quarter in 2008 saw a slowdown, following the collapse of Lehmans and, in particular, the impact this had on the corporate bond market. Lack of liquidity and uncertainty around pricing and risk of default gave the insurers headaches because corporate bonds are key assets they use to back annuities. This meant that while there continued to be attractive deals to be done, some insurers remain cautious.”