UK - A record £12.5bn ($20bn) risk transfer deals were done in the first half of the year and a quarter of major firms will de-risk by 2012, Hymans Robertson predicts.
The consultant's Managing Pension Scheme Risk Report Q2 2010 said record levels of risk transfers meant it was likely one in four FTSE100 companies would undertake similar exercises within two years.
The report found £12.5bn pension scheme risk transfer deals were completed in the year to 30 June. Buy-ins and buyouts covered more than £5.4bn of pension scheme liabilities in the last year - with some £3.3bn in the first half of 2010 alone.
The report said £6.3bn of deals were signed in the first six months of this year - and the consultant predicts the final tally could be £15bn.
Hymans Robertson senior liability management specialist James Mullins (pictured) said affordability had driven market activity.
He explained: "Market conditions have improved over the last year - meaning that risk transfer deals are more affordable. Currently, the market is ideal for pension schemes to be able to replicate the DIY buy-in deal that RSA Insurance completed with Goldman Sachs in July 2009.
"Pension schemes can make use of the current apparent anomaly in the government bond markets to fund a longevity swap, with potentially no adverse impact on the scheme's financial position - despite the removing material risks."
Mullins said "would not be surprised" to see another large pension scheme complete a DIY buy-in - where a deal combines a longevity swap with a liability driven investment strategy - over the summer.
Mullins also said the ‘snowball' effect - where one scheme takes the plunge and is quickly followed by its peer group - is also evident.
He added: "The raft of pension scheme closures over the last 18 months coupled with the impending restrictions on tax relief for high earners' pension contributions are further increasing the demand from pension schemes to reduce risk."
British Airways became the eighth FTSE100 company to complete a material risk transfer deal for its pension scheme, when it completed a record £1.3bn buy-in with
Rothesay Life, the insurance company owned by Goldman Sachs at the end of Q2 2010.
The report showed the market for buy-in/buyouts during the year to 30 June was dominated by Rothesay Life and Pension Insurance Corporation, which both took about 30% of market share.
MetLife, Legal & General, Aviva and Lucida had a fairly even share of the remainder. The value of buy-ins was more than three times the value of buyouts.
Mullins said: "Pension schemes need to understand the risks inherent in their schemes and manage them appropriately. Longevity is widely viewed as one of the biggest unmanaged risks they face."
"Already in 2010 we have seen significant developments in the longevity swap market. In
February 2010, Abbey Life, in conjunction with Deutsche Bank and Paternoster, completed a longevity swap covering around £3bn of BMW's UK pension scheme liabilities - in what was the biggest ever pension scheme risk transfer deal.
"We are aware of several other multi-billion pound longevity swaps that are getting closer to completion.
"In anticipation of significant interest from UK pension schemes, Legal & General, UBS and Morgan Stanley have all entered the longevity swap market since the start of 2010 and Munich Re is a new entrant to offer secondary reinsurance in this market."
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