Extending the recovery seen in the
third quarter of 2009, the UK’s final salary pension scheme risk
transfer market recorded deals worth a total of £2.25 billion
($3.56 billion) in the fourth quarter, reports actuarial
consultancy Hymans Robertson.
Though the value of fourth quarter 2009 deals
was down compared to £3.86 billion in the previous quarter, it
represented the second-highest quarterly total in 2009 – and was
19.7 percent higher than the £1.88 billion recorded in the fourth
quarter of 2008.
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Overall, the risk transfer market ended 2009
with deals struck totalling £7.5 billion, not far short of the
record £8.18 billion recorded in 2008.
During the fourth quarter of 2009 traditional
buy-out/buy-in deals struck came in at a total of £1.5 billion, up
compared with £958 million in the second quarter but below the
£1.88 billion in deals seen in the fourth quarter of 2008.
In the biggest of the fourth-quarter
buy-out/buy-in deals, Pension Insurance Corporation completed a
£500 million buy-in deal with UK confectionary manufacturer
Cadbury.
However, the most significant deal was likely
to have been the £370 million buy-in deal undertaken by Goldman
Sachs’ UK risk transfer business Rothesay Life on behalf of the CDC
Pension Scheme.
As a point of significance, the deal was the
first to be undertaken by a public sector pension scheme. CDC Group
is the UK government-owned fund of funds investing in private
equity funds focused on the emerging markets of South Asia and
sub-Saharan Africa.
In addition, the deal was also the first to
have been automatically completed once a pre-agreed trigger point
was met. In this instance the trigger point was the buy-in cost
equalling the CDC Pension Scheme’s assets.
James Mullins, a senior liability management
specialist at Hymans Robertson, commented: “We fully expect CDC to
be the first of many pension schemes to make use of pre-agreed
trigger points in this way.”
As in the third quarter of 2009, the solid
figures achieved during the fourth quarter owed much to the new
longevity swap segment, in which one deal worth £750 million was
struck.
Mullins noted that Swiss Re was the
counterparty behind the longevity swap undertaken by the Royal
County of Berkshire Pension Fund.
The longevity swap segment came into being in
the third quarter of 2009 when three deals worth a total of £2.9
billion were struck and, believes Hymans Robertson, is set to be a
major driver of activity in the risk transfer market.
“It is likely that some highly material
longevity swaps will be completed early in the New Year and we
fully expect longevity hedging to continue to receive significant
interest during 2010 and beyond,” said Mullins.
