Consultant Study: Risk-Transfer Deals Spike in Q1

(August 15, 2011) — Among UK schemes, risk transfer deals were up 400% at the end of Q1, a Hymans Robertson analysis has found.

“The second quarter saw a buoyant return to activity in the pension risk transfer market after a quieter start to the year,” Hymans Robertson partner and head of trustee solutions Patrick Bloomfield, stated. “The entry of new providers also indicates that banks and insurers believe the marketplace will continue to develop strongly.

According to the consultancy’s quarterly Managing Pension Scheme Risk report, pension risk transfer deals totaling £1.4 billion were completed in the second quarter with five providers each concluding business in excess of £150 million.

Bloomfield added: “The level of activity highlights how several schemes have taken the opportunity to de-risk at what appears to have been an opportune time. Market conditions were favorable throughout the quarter, but have turned dramatically in August’s market turmoil.”

The survey noted that the buy-in/buyout market was dominated by Prudential — which led the pack with more than 32% of market share — along with Aviva, Legal & General, Pension Insurance Corporation and MetLife.

Furthermore, the consulting firm’s findings noted that strong activity in schemes pursuing longevity swaps is expected in the months ahead. “Schemes looking to pursue this route will need to ensure they have accurate data on their members’ life expectancy though, in order to ensure they receive a well-priced, suitable arrangement,” Bloomfield noted.

In May, Hymans Robertson concluded that corporate pension funds in the UK plan to offload about £20 billion in defined benefit liabilities over the next 18 months. According to the firm, pensions will transfer their risk to banks and insurers, leading to a record number of deals to complete buyouts, buyins, or longevity swaps. James Mullins at Hymans stated in a release that by the end of 2012, one in four FTSE 100 companies would have completed either a buyout or a buyin.

“Our analysis illustrates that it won’t be long before £50 billion of pension scheme risk has been transferred to insurance companies and banks,” Mullins said. “2010 was the third successive year during which £8 billion of pension scheme risks were transferred via buy-ins, buy-outs and longevity swap deals. 2011 is likely to see a substantial increase above these levels.”