Pensions - Articles - Buyout deals on track to exceed 2012’s total of £4.5bn

 The appetite for de-risking solutions remains strong amongst both sponsors and trustees, as evidenced by the deals announced to date in 2013, according to the latest JLT Employee Benefits Buyout Market Watch Update. With insurers reporting a healthy pipeline of potential deals, there is an optimistic mood for a very successful year with total deals likely to exceed last year’s figure of £4.5bn.
 
 In July 2013, the EMI Group Pension Fund completed a £1.5bn buyout transaction with PIC, the largest buyout deal to date. Significantly, the transaction covered all risks, including data errors.

 Also, in early September 2013, Rothesay Life insured £440m of liabilities in respect of the InterContinental Hotels UK Pension Plan in a full buy-out transaction.
 
 In addition to these more recent deals, the largest bulk annuity deals struck in H1 2013 have included:

 *Transacted in Q2 2013, but announced in July 2013.

 There have also been two longevity swap deals agreed so far in 2013: The largest longevity swap deal to date, announced in February 2013 between Legal & General and BAE Systems, covering £3.2bn of liabilities; and in May 2013 between the Bentley Pension Scheme and Deutsche Bank, covering £400m of liabilities.
 
 Additionally the market in medically underwritten bulk annuities is fast developing, with several transactions announced in the first half of 2013. Whilst initial deals were all written by Partnership Assurance, other insurers Legal & General, Just Retirement and Aviva are also able to provide medically underwritten quotations and more deals are expected to be announced within the next few weeks.
 
 Buyout affordability has improved for both deferred and pensioner members, mostly due to increases in long-dated gilt yields, which rose further than long-dated corporate bond yields over the six months to 30 June 2013.
 
 Martyn Phillips, Director, Head of Buyouts, JLT Employee Benefits commented: “Market sentiment towards bulk annuity deals continues to be favourable as it is increasingly acknowledged that pension liabilities calculated on an accounting basis are not a realistic estimate of a sponsor’s exposure.
 
 “Many schemes are undertaking buy-ins as precursor to full buyouts of the liabilities. This has a limited impact on the company’s accounts as it represents a trustee investment decision rather than a settlement of the liabilities. It also allows the sponsor/trustees to insure the membership in tranches, building up to a fully secured scheme which can then be formally wound up.
 
 “Companies remain very keen to de-risk and continue to see a buyout as their longer-term objective. This is confirmed by the fact that the majority of the larger deals completed over the recent past have been sponsor- rather than trustee-driven.
 
 “Meanwhile, insurers remain keen to transact, given the right terms, and are open to innovation.
 
 “We expect 2013 to be viewed as a healthy year for de-risking deals for the market as a whole, with business volumes on track to surpass 2012 figures. Insurer pipelines remain positive and our discussions with the insurers indicate continuing optimism for the end of the year.”