Key findings of the Hymans Robertson “Managing Pension Scheme Risk Report Q3 2011” show:
The third quarter of 2011 saw over £2 billion of risk transfer deals completed, comprising buy-ins, buy-outs and longevity swaps.
- A series of significant pension scheme risk transfer deals expected to close during the fourth quarter of 2011 look set to ensure that 2011 will be a record year for pension scheme buy-ins, buy-outs and longevity swaps; with deals potentially topping £9 billion of UK pension scheme liabilities during 2011 alone.
- The £1.1 billion Turner & Newall buy-in with Legal & General, announced at the end of October 2011, was the largest of its kind to date.
- In August 2011, ITV became the 11th FTSE 100 company to complete a material risk transfer deal with its pension scheme, when it completed a £1.7 billion longevity swap deal with Credit Suisse.
- This was the third-largest pension scheme risk transfer deal and the largest since BMW’s £3 billion longevity swap in February 2010.
- Since the longevity swap market took off in the summer of 2009, nine longevity swap deals have now covered £9 billion of UK pension scheme liabilities.
- FTSE 100 companies alone have now transferred the risks associated with over £8 billion of pension scheme liabilities to insurance companies and banks.
- The third quarter of 2011 saw over £2 billion of pension scheme risk transfer deals, with £350 million of insured buy-in/buy-out deals in addition to the ITV longevity swap.
- The twelve months to 30 September 2011 saw £5.4 billion of risk transfer deals.
- During the third quarter of 2011, it was confirmed that Home Retail Group completed a £280m buy-in deal with Prudential in May 2011, the 10th FTSE 250 company to complete a material risk transfer deal with its pension scheme.
- The providers operating in this market continue to develop:
? Nomura, Friends Life and other insurance companies look set to enter this market during 2012
? Meanwhile, Legal & General celebrates 25 years in the bulk annuity market.
- Insurance companies and banks have taken on the risks associated with around £30bn of pension scheme liabilities since 2006/2007. With pipelines in this market looking so strong, this figure is expected to rise to £50bn before the end of 2012.
James Mullins, Partner and Head of Buy-out Solutions, at Hymans Robertson, comments:
“A series of significant pension scheme risk transfer deals expected to close during the fourth quarter of 2011 look set to ensure that 2011 will be a record year for pension scheme buy-ins, buy-outs and longevity swaps; with deals potentially topping £9 billion of UK pension scheme liabilities during 2011 alone.”
“Pension schemes are increasingly viewing buy-in deals simply as an investment strategy decision, and one that looks particularly attractive in the current market. Many pension schemes are reviewing their Government gilt holdings, which provide quite a good match for pensioner liabilities, given the option to exchange some of their Government gilts for a buy-in policy, which provides a near perfect match for pensioner liabilities, and at a potentially lower cost. This pricing dynamic is one of the few positives for UK pension schemes following the market turmoil since the summer of 2011.
Looking ahead for 2012, James Mullins added:
“2012 will be as buoyant as 2011 for the pensions risk transfer market as pension schemes continue to engage in buy-ins and longevity swaps. Providers will continue to ramp up their efforts to meet this demand which is likely to see insurance companies and banks take on up to £50 billion of pension scheme liabilities before the end of 2012.
“As long as banks and insurers continue to provide a flexible approach to make these risk transfers feasible and affordable to all pension schemes, we will see more deals in the pipeline and indeed more insurance companies looking to enter into this market.
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