A report released by consultant Hymans Robertson shows scheme risk transfer deals totaling £1.4 billion were concluded in Q2, 2011, with five of the providers concluding deals valued at over £150 million each.
The deals concluded in Q2 were up 400 per cent over Q1 and were primarily buy-ins. The quarter was the busiest since the credit crisis hit the markets in 2008. The Managing Pension Scheme Risk report, published quarterly, showed the buy-in/buy-out market was dominated by bigger players like Aviva Prudential, Legal & General, MetLife and Pension Insurance Corporation.
Prudential was the leader of the pack with an impressive 32 per cent market share by value with the biggest single deal valued at £280 million.
Nomura and Friends Life were the new entrants in the market due to increasing demand from the schemes.
“The second quarter saw a buoyant return to activity in the pension risk transfer market after a quieter start to the year. The entry of new providers also indicates that banks and insurers believe the marketplace will continue to develop strongly,” said Patrick Bloomfield, partner and head of trustee solutions at Hymans Robertson.
“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 favourable throughout the quarter, but have turned dramatically in August’s market turmoil”, he added.
The present market conditions are conducive to schemes seeking to hedge longevity risk, he said.
“However, for less well hedged schemes trustees and sponsors should consider the full range of asset options, not just insurance solutions, to make sure they achieve the best balance of risk and reward for their scheme,” said Mr. Bloomfield, adding that several “potentially significant” longevity swap deals have reached exclusivity stage.
“We are likely to see further strong activity across the remainder of the year, particularly with schemes pursuing longevity swaps, several of which are already in the pipeline. 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,” he said and added that a quarter of FTSE100 companies are expected to conclude a de-risking deal before 2013.