Serious questions over buyout market capacity

Despite three consecutive strong quarters Aon research said the capacity of providers is being stretched.

The report said financial conditions are continuing to make buyout look attractive to pension schemes – with the market surging 80pc in the second quarter from the first quarter in 2008.

The market has now reached £2.7bn, £1.2bn more than the first quarter of 2008.

However, the consultant said increased activity has placed insurers under considerable pressure to meet the demand leading to slow turn around times a reluctance to provide full quotations and a more selective approach.

Aon Consulting principal and actuary Paul Belok said: "The buyout market has continued to be a beneficiary of the worsening economic conditions, picking up record levels of business during the second quarter of this year.

"Interestingly, whilst the volumes transacting are historically high, we have seen the first casualty in the battle for market share, with Synesis pulling out of the fray. On the other hand, Swiss Re is a new entrant and there may be more to come. We certainly expect to see continuing jockeying for position and inevitably some rationalisation of the participants in the market in due course."

He added that for cases below £20m there was now less competition, but that there was growing interest from schemes over £1bn.

Belok added: "The amount of activity in the market raises serious questions over capacity of providers. In the past quarter, high demand has caused considerable stress at a number of the insurers as they seek to cope with demand.

"This has had an impact on the speed at which quotations can be turned around and indeed insurers are becoming more selective in what schemes to work with."