Having recovered well from
depressed levels in late-2008 and the first half of 2009, the UK’s
defined benefit pension scheme risk transfer market is just getting
into its stride, believes actuarial consultancy Hymans
Robertson.
This is the “calm before the
storm,” said James Mullins, a senior liability management
specialist at the firm.
Go deeper with GlobalData
“Based on the level of
activity we are currently observing in the market, we expect one in
four FTSE 100 companies (largest 100 UK listed companies) to have
completed a material pension scheme risk transfer deal by the end
of 2012,” said Mullins.
Among factors adding to the
positive outlook is that insurers and banks are offering new
flexibility to help make risk transfers accessible to all pension
schemes, he added.
Underscoring this, risk
transfer advisory firm Pension Capital Strategies (PCS) noted
recently that solution providers are increasingly willing to carry
out a demographic analysis of pension schemes in order to offer the
best price possible.
“Schemes with clean data and
sufficient demographic information may be able to achieve a price
of between 105% and 110% of their accounting liabilities,” noted
PCS.
Mullins said that in addition
to improvements in market conditions and flexibility offered by
solution providers, pension schemes are increasingly keen to manage
away as much risk as they can.
He added: “The more pension
schemes that tackle pension scheme risk, the more pressure there is
on other pension schemes to follow suit.”
Indicating the market’s
strength, risk transfer deals completed in the four quarters ended
September 2010 stood at £11.864bn ($18.3bn) with £7.1bn through
longevity swaps and £4.764bn through buyout and buy-in deals. The
previous annual record of £8.2bn was set in 2008.
Heading the deal-list in
terms of value in the four quarters to September 2010 was a £3bn
longevity swap undertaken by Deutsche Bank’s Abbey Life
unit.
In the buyout/ buy-in segment, US investment bank Goldman
Sachs’ Rothesay Life led the field with four deals valued at a
total of £1.67bn, while the highest number of deals, 93, were
completed by UK insurer Legal & General and had a total value
of £603m.
