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The Actuary The magazine of the Institute & Faculty of Actuaries

Pension de-risking deals down £1.25bn in Q1

Pensions de-risking business slumped by 78% in the first quarter of this year despite a high level of activity in the market, research shows.

JLT Pension Capital Strategies’ quarterly analysis of pensions buyouts, published today, found £350m of new business was written this year, down from £1.6bn in Q4 2010.

But PCS said insurers were confident on prospects for 2011, with reported activity completed in Q2 2011 to date totalling more than £1bn and ten schemes with assets of £1bn or more investigating buyouts or buy-ins.

PCS head of buyout services Tiziana Perrella said: "This could mean another record year, if even just a fraction of these cases go through... The high level of activity in the early part of the year has not been reflected in the deals completed."

The firm said the prospects for the buyout industry remained "excellent" as defined benefit schemes matured and anticipated a "flurry of activity" in the second quarter.

These figures back up research by Hymans Robertson which predicted schemes would shift a further £20bn of liabilities to insurance companies and banks over the next 18 months despite a slow start to the year.

The PCS report identified the accelerating shift from equity to bond exposure for schemes as evidence of increasing risk aversion.

It found bulk annuity prices had been stable through 2010 and the first quarter of this year with insurers improving their pricing basis, offering underfunded schemes partly deferred payment, deferred insurance or tranched solutions.

The most popular de-risking contracts - pensioner buy-ins and insurers - were also increasingly likely to insure GMP equalisation risk and with more reasonable prices than in previous years quoted, PCS found.

Last month research from LCP suggested strong asset gains and the closure of DB schemes had made pensioner buy-in prices their most attractive since 2008.

Perrella said: "A relatively slow start to the year gives us no cause for concern. We are likely to seeing a healthy amount of activity over the course of 2011 in the buyout market."

She added, however, that the impact of Solvency II and the continuing sovereign debt crisis on bulk insurers was still uncertain.

"While most insurers are confident that changes made to their structure are sufficient, some insurers will be looking to make further changes still," she explained. "That said, we believe insurers are in a strong position to complete buyouts for the majority of large and small schemes."

[Source: Professional Pensions”