There was an increase in pension buy-ins and buy-outs last year as affordability increased due to higher gilt yields and a rise in UK equities, actuarial firm LCP said today.
LCP's analysis of insurance data showed that 2013 was the most active year ever for buy-in, buy-out and longevity swap activity, worth over £16bn of liabilities hedged. It said this was made up of £7.4bn of buy-ins and buy-outs, together with five large longevity swaps adding a further £8.9bn.
According to LCP's data analysis, Pension Insurance Corporation was the lead insurer for 2013 with £3,745m of buy-ins and buy-outs, giving the firm a market share of 50%. In second place was Rothesay Life with a 20% market share with £1,670m of buy-ins and buy-outs. Legal and General placed third with £1,314m, equating to an 18% market share.
In 2014, LCP predicts that the buy-in and buy-out volumes will be larger than the £7.4bn seen in 2013 and could exceed £10bn for the first time. For the same year, longevity swaps are expected to be concentrated in a relatively small number of high value transactions. Despite expectations that that the market will become more accessible for smaller pension schemes, LCP anticipates that longevity swaps will continue to be limited to larger plans in 2014.
LCP partner Emma Watkins said: '2013 has beaten all years on record. We saw a general increase in activity and interest, particularly from large pension schemes, with the average transaction size increasing by over 30%. With affordability increasing due to higher gilt yields and a 20% rise in UK equities, we can only see activity levels going up in 2014.
'We have every reason to expect that 2014 volumes will continue the positive momentum from last year. As pension plans hedge larger proportions of their interest rate and inflation risk, longevity risk will become a more significant part of every pension plan's remaining risks.
'A buy-in or longevity swap is a natural way to hedge this risk and we can see this trend coming through in the 2013 statistics.'