Buyout bonanza in 2007
UK - The UK pension fund buyout market in Q4 2007 increased by more than twice the previous three quarters put together, according to Aon Consulting.
There was a dramatic increase in the amount of cases (75) totalling £1.86bn (US$3.7bn) of assets, however, 75% of all Q4 business related to just four deals, Emap, P&O, Lasmo and Weir Group.
The survey was based on information from the leading players in the buyout market and showed the market was dominated by two providers, Legal & General and Paternoster, who each wrote over £1bn during the year. The next highest was only just over £100m.
Looking at the number of cases placed, over 70% went to just one insurer.
The average value per scheme placed in Q4 was up from around £5m per case to almost £25m.
There was also a higher take-up of "non-standard" buyouts such as partial or phased buyouts, or on a risk-share basis, with eight of the 75 cases being something other than full buyout.
Aon said an indication of likely future business levels in the buyout market ought to be the number of quotations being provided.
In 2007, the number of funds seeking buyout quotations had been steadily increasing. Q4 was no different, there were 432 cases quoted with £40.9bn total value.
The average value per quotation was just under £100m, although there was significant variations by insurers.
Paul Belok, principal & actuary at Aon Consulting, said: "The fourth quarter of 2007 was, on the face of it, a very successful one, with more than twice as much business written than in the previous three quarters put together.
"Scratch beneath the surface, however, and the story is less dramatic, a small handful of high value schemes were the cause of this exceptional growth, without these, 2007 as a whole would have shown only modest growth relative to 2006.
"So far buyouts have tended to be for special cases, for example where there is a driver from corporate activity requirements, strong funding levels, pressure from large overseas parent companies. To put this into context, it is worth noting that 99.8% of defined benefit schemes (by value) did not buy out in 2007."
The survey was based on information from the leading players in the buyout market and showed the market was dominated by two providers, Legal & General and Paternoster, who each wrote over £1bn during the year. The next highest was only just over £100m.
Looking at the number of cases placed, over 70% went to just one insurer.
The average value per scheme placed in Q4 was up from around £5m per case to almost £25m.
There was also a higher take-up of "non-standard" buyouts such as partial or phased buyouts, or on a risk-share basis, with eight of the 75 cases being something other than full buyout.
Aon said an indication of likely future business levels in the buyout market ought to be the number of quotations being provided.
In 2007, the number of funds seeking buyout quotations had been steadily increasing. Q4 was no different, there were 432 cases quoted with £40.9bn total value.
The average value per quotation was just under £100m, although there was significant variations by insurers.
Paul Belok, principal & actuary at Aon Consulting, said: "The fourth quarter of 2007 was, on the face of it, a very successful one, with more than twice as much business written than in the previous three quarters put together.
"Scratch beneath the surface, however, and the story is less dramatic, a small handful of high value schemes were the cause of this exceptional growth, without these, 2007 as a whole would have shown only modest growth relative to 2006.
"So far buyouts have tended to be for special cases, for example where there is a driver from corporate activity requirements, strong funding levels, pressure from large overseas parent companies. To put this into context, it is worth noting that 99.8% of defined benefit schemes (by value) did not buy out in 2007."
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