17 February 2010
Published in: Longevity - mortality
Pension scheme risk transfers set to double in 2010
Consultants Hymans Robertson today reported that £7.8bn of pension scheme risk transfer deals were completed in 2009 - a figure it expects to double in 2010. The firm anticipates that the increased demand for pension scheme deals will drive up the longevity swaps market which, according to current trends, may cover liabilities in excess of £10bn in 2010.
"Pension schemes are increasingly keen to manage away as much risk as possible," James Mullins, senior liability management specialist at the firm, said. "Pensions 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, Mullins added. Today, for example, Legal & General announced it will enter the longevity insurance market with immediate effect. Earlier this month it was reported that Abbey Life, in conjunction with Deutsche Bank and Paternoster, is nearing completion of a longevity swap covering around £2.5bn of BMW's UK pension scheme liabilities; this would be the largest ever risk transfer deal.
The Hymans Robertson Managing Pension Scheme Risk quarterly report shows that the market for buy-in/buy-outs in 2009 was dominated by Pension Insurance Corporation (PIC), which took almost a third of market share, closely followed by Legal & General (L&G) with 23%. The value of buy-ins was more than three times the value of buy-outs (£2.8bn versus £0.9bn) and market activity for both increased through the latter half of the year with £1.2bn deals completing in the fourth quarter.
The Credit Suisse/Babcock International and Rothesay Life/RSA Insurance longevity swap deals along with the Merchant Navy Officers Pension Fund buy-in with PIC ensured that the third quarter of 2009 was the highest ever quarter for pension scheme risk transfers (£3.9bn).
"It's interesting to note that two insurance companies, RSA and Friends Provident, who specialize in managing other people's risks have now completed significant de-risking deals for their own final salary pension schemes. We expect to see more FTSE 100 companies completing risk transfer deals for their pension schemes later in 2010."