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The Actuary The magazine of the Institute & Faculty of Actuaries

£1.4bn risk transfer deals completed in Q2 2011

This figure represents a near 400% increase in the value of deals completed compared to the previous quarter, and several deals remain in the pipeline for later in the year.

The independent pensions and benefits actuarial firm's 'Managing Pension Scheme Risk' report shows that the market for buy-in/buy-outs for the 12 months to 30 June 2011 was dominated by Prudential, Aviva, Legal & General, Pension Insurance Corporation and MetLife.

Prudential led the field with over 32% of market share, by value during this period.

Nomura and Friends for Life entered this market during Q2 2011.

Patrick Bloomfield, partner and head of trustee solutions at Hymans Robertson, said: "The second quarter saw a buoyant return to activity in the pension risk transfer market after a quieter start to the year. The entry of new providers also indicates that banks and insurers believe the marketplace will continue to develop strongly.

"The level of activity highlights how several schemes have taken the opportunity to de-risk at what appears to have been an opportune time to do so. Market conditions were favourable throughout the quarter, but have turned dramatically in August's market turmoil. For schemes that were already significantly de-risked or are looking at hedging longevity risk recent market events are unlikely to be a barrier to a deal. However, for less well-hedged schemes trustees and sponsors should consider the full range of asset options, not just insurance solutions, to make sure they achieve the best balance of risk and reward for their scheme."

Mr Bloomfield added: "We are likely to see further strong activity across the remainder of the year, particularly with schemes pursuing longevity swaps, several of which are already in the pipeline. Schemes looking to pursue this route will need to ensure they have accurate data on their members' life expectancy though, in order to ensure they receive a well-priced, suitable arrangement.

"Looking further ahead, we predict schemes will continue to look to de-risk, with one in four FTSE 100 companies completing a deal by the end of 2012. Banks and insurers continue to offer new flexibility to make risk transfers accessible and more affordable to all pension schemes. This will help fuel the market, and we may also see further use of ‘DIY buy-ins'. This involves a scheme combining a longevity swap with an investment strategy that matches the cashflows that the pension scheme is required to pay its pensioners each year. Given August's market events we may see the DIY approach being favoured by larger schemes for some time."

For more information visit Hymans Robertson LLP