According to JLT Pension Capital Strategies (PCS), pension buyouts in 2010 grew by 8% over 2009 and were recorded at £8.1 billion. Transactions in Q4, 2010 alone amounted to £1.6 billion. PCS forecasts the growth trend to continue in the current year with total transactions exceeding £10 billion.
The buyout prices for 2010 were generally stable, indicating an overall improvement of the economic conditions. There was optimism of high business levels as some insurers actually improved on their pricing basis.
Unless external influences come into play, no significant price change in the short term seems unlikely, opines PCS. Insurers indicate the new requirements under the Solvency II regulation (Insurers are required to strengthen their reserves) has already been factored in their pricing.
“There remains a clear desire from sponsors for schemes to reduce risk, with buyouts being the ultimate aim. We expect the market to continue to innovate, providing solutions for all but a few very poorly funded schemes. Though very few schemes will be in a position to complete a full buyout, many could realistically buyout pensioner liabilities or even a tranche of liabilities”, said Tiziana Perella, head of buy-out services at PCS.
“The quotation pipelines reported by insurers in the final quarter of 2010 were very healthy, leading to a bullish view for the market in the early part of 2011. Unless changes in the economic situation dictate otherwise, we expect total buyout activity to exceed £10bn during 2011”, she added.