Risk transfer deals could top £9bn before year end
More than £2bn of pension fund liabilities was transferred in the third quarter of the year through buy-ins, buyouts and longevity swaps, Hymans Robertson analysis shows.
The consultant also predicts a significant number of risk transfer deals are likely to close in the fourth quarter - making 2011 a record year for scheme de-risking with deals potentially topping £9bn.
Analysis of the market found the £1.1bn Turner & Newall buy-in with Legal & General was the largest ever. The third quarter Home Retail Group £280m buy-in with Prudential was also highlighted.
Hymans Robertson partner and head of buyout solutions James Mullins (pictured) said schemes are increasingly viewing buy-in deals as an investment strategy decision, particularly in the current market.
He explained: "Many pension schemes are reviewing their government gilt holdings, which provide quite a good match for pensioner liabilities, given the option to exchange some of their government gilts for a buy-in policy, which provides a near perfect match for pensioner liabilities, and at a potentially lower cost. This pricing dynamic is one of the few positives for UK pension schemes following the market turmoil since the summer of 2011."
Other notable deals included ITV becoming the eleventh FTSE100 company to complete a material risk transfer deal with its scheme, when it completed a £1.7bn longevity swap deal with Credit Suisse.
Hymans said it was the third-largest pension scheme risk transfer deal and the largest since BMW's £3bn longevity swap in February 2010.
Longevity swaps have removed £9bn of scheme liabilities since they took off in 2009.
The third quarter of 2011 saw more than £2bn of pension scheme risk transfer deals, with £350m of insured buy-in/buyout deals in addition to the ITV longevity swap.
Mullins said he expected next year to be "as buoyant as 2011" as schemes will continue to engage in buy-ins and longevity swaps.
He added: "Providers will continue to ramp up their efforts to meet this demand which is likely to see insurance companies and banks take on up to £50bn of pension scheme liabilities before the end of 2012.
"As long as banks and insurers continue to provide a flexible approach to make these risk transfers feasible and affordable to all pension schemes, we will see more deals in the pipeline and indeed more insurance companies looking to enter into this market."
The consultant said Nomura, Friends Life and other insurance companies are set to enter the market next year.
Buy-outs/buy-ins - No. of deals completed
| Provider | No of deals completed Q4 2010 | No of deals completed Q1 2011 | No of deals completed Q2 2011 | No of deals completed Q3 2011 | Total no deals completed (Year to 30 September 2011) |
|---|---|---|---|---|---|
| Aviva | 12 | 13 | 6 | 7 | 38 |
| Legal & General | 37 | 21 | 24 | 15 | 97 |
| Lucida*** | - | - | - | - | - |
| MetLife* | 5 | 3 | 5 | 7 | 20 |
| Pension Insurance Corporation | - | 3 | 4 | 2 | 9 |
| Prudential | 1 | - | 1 | ** | 2 |
| Rothesay Life | - | 1 | - | 1 | 2 |
| Total | 55 | 41 | 40 | 32 | 168 |
Buy-outs/buy-ins - Value of deals completed
| Provider | Value of deals completed Q4 2010 | Value of deals completed Q1 2011 | Value of deals completed Q2 2011 | Value of deals completed Q3 2011 | Total value of deals completed (Year to 30 September 2011) |
|---|---|---|---|---|---|
| Aviva | £327m | £139m | £169m | £34m | £669m |
| Legal & General | £360m | £23m | £213m | £25m | £621m |
| Lucida*** | - | - | - | - | - |
| MetLife* | £50m | £30m | £277m | £88m | £445m |
| Pension Insurance Corporation | - | £89m | £426m | £57m | £572m |
| Prudential | £892m | - | £280m | ** | £1,172m |
| Rothesay Life | - | £65m | - | £150m | £215m |
| Total | £1,629m | £346m | £1,365m | £354m | £3,694m |
Source: Hymans Robertson
* MetLife figures include deals for Alico (formerly AIG) following MetLife's acquisition of Alico, completed on 1 November, 2010.
** Prudential's Q3 2011 figures are not due to be published until 2012. We do not expect their figures to materially affect the above totals.
*** Figures for Lucida exclude transactions with organisations that are not UK pension schemes.
Longevity swaps - No. of deals completed
| Provider | No of deals completed 2009 | No of deals completed 2010 | No of deals completed Q1 2011 | No of deals completed Q2 2011 | No of deals completed Q3 2011 | Total no of longevity swap deals completed |
|---|---|---|---|---|---|---|
| Credit Suisse | 3 | - | - | - | 1 | 4 |
| Rothesay Life (Goldman Sachs) | 2 | - | - | - | - | 2 |
| Swiss Re | 1 | - | - | - | - | 1 |
| Abbey Life (Deutsche Bank) | - | 1 | - | - | - | 1 |
| JP Morgan | - | - | 1 | - | - | 1 |
| Total | 6 | 1 | 1 | 0 | 1 | 9 |
Longevity swaps - Value of deals completed
| Provider | Value of deals completed Q4 2010 | Value of deals completed Q1 2011 | Value of deals completed Q2 2011 | Value of deals completed Q3 2011 | Total value of longevity swap deals completed | |
|---|---|---|---|---|---|---|
| Credit Suisse | 1.2bn | - | - | - | 1.7bn | 2.9bn |
| Rothesay Life (Goldman Sachs) | 1.9bn | - | - | - | - | 1.9bn |
| Swiss Re | 1bn | - | - | - | - | 1bn |
| Abbey Life (Deutsche Bank) | - | 3bn | - | - | - | 3bn |
| JP Morgan | - | - | 0.1bn | - | - | 0.1bn |
| Total | 4.1bn | 3bn | 0.1bn | 0bn | 1.7bn | 8.9bn |
Source: Hymans Robertson
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