The first three months of 2012 saw £500m of pension buyout deals transacted as activity levels stabilised after exceptional volumes of de-risking last year, JLT Pension Capital Strategies said today.
In its latest analysis of de-risking by pension funds, the consultancy said insurers were positive there would be an increase in buyout activity over the remainder of the year, as pension sponsors transfer risk for meeting their pension promise to insurers. Last year there were an estimated £12bn of buyout and longevity swap deals.
The second quarter of 2012 saw the announcement of two large deals together worth more than £150m, JLT noted. Pensioner buy-ins remain the most desirable way of de-risking due to their affordability, the consultancy said. It explained that schemes feeling the strain of funding levels can potentially complete a buy-in - where trustees buy a bulk insurance policy to cover some of their members - with no additional funding, unlike a buyout, which also covers deferred members of the scheme.
Low gilt yields have led to schemes with the right investment profile being able to exchange their gilt holdings for a pensioner buy-in contract at little or no additional cost, it added.
Bulk annuity prices remain higher than 12 months ago - largely due to continuing low bond yields - but JLT said there was still the potential for the continuing problems faced by the eurozone to impact on the market.
Martyn Phillips, director and head of buyout consulting at JLT, said: 'It remains to be seen what effect the persistent sovereign market crisis in Europe will have on the bulk annuity market. The market has been buoyant during testing conditions, with a record number of deals being completed in 2011.'
He added: 'Deal activity for the rest of the year, in particular pensioner buy-ins, is expected to improve after a period of stability in Q1 2012. As insurers continue to offer flexibility in their terms, interest in de-risking solutions will remain high and more schemes of all sizes will approach the market over the remainder of 2012.'