Defined benefit pension scheme risk
transfers continue to be a bright-spot in the UK life market with
actuarial firm Hymans Robertson (HR) reporting that the number of
deals awaiting finalisation are at by far the highest levels since
before credit crisis.
“There are several multi-billion
pound buy-ins and longevity swaps currently being tendered and
expected to complete during 2011,” said James Mullins, HR’s head of
He added that many providers have
acknowledged that they are currently devoting “serious resources”
to around 20 similar projects for some of the UK’s largest pension
“Based on the level of activity
currently in the market, we expect one in four FTSE 100 companies
to have completed a material pension scheme risk transfer deal by
the end of 2012,” noted Mullins. “There is a snowball effect here.
The more schemes that tackle risk, the more pressure there is on
others to follow suit.
“The raft of final salary closures
over the last two years, and the impending restrictions on tax
relief for high earners’ pension contributions, are raising serious
questions for companies over the merits of continuing to run
significant risk within their DB pension schemes.”
However, in the first quarter of
2011 activity was subdued. According to the actuarial firm, the
value of new buy-in, buyout and longevity deals finalised was £350m
($550m), down from £1.63bn in the fourth quarter of 2010.
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In the 12 months to 31 March 2011,
a total of £4.5bn of risk transfer deals were completed – the
majority of which were buy-ins.
The quiet first quarter of 2011 was
only a lull before activity accelerates, believes HR, which
predicts that the number of new buy-in and buyout deals struck in
the second quarter will reach a new record.
The firm expects a surge in
longevity swaps where activity has been extremely quiet with only
one deal completed in the first quarter of 2011. This was the first
since the first quarter of 2010.
By the end of the first quarter of 2011, insurers and banks have
taken on risks associated with around £30bn of pension scheme
liabilities. HR expects this to rise to £50bn before the end of