Pension risk transfer market to hit records for 2011

2011 could be a record year for pension scheme risk transfer deals as the desire to de-risk or offload risks including longevity grows among pension fund managers. So far 2011 has seen significant volumes in the pension buy-in and buy-out arena and also longevity swaps. By the end of 2011 pension consultants Hymans Robertson expect that the market will have seen deals totalling as much as £9 billion in the UK alone.

The latest quarterly report from Hymans Robertson ‘Managing Pension Scheme Risk Report Q3 2011’ shows that a number of new deals are expected to come to market during Q4 and these look set to help 2011 become a record year for pension risk transfer. This year has seen the largest single pension scheme buy-in transaction to date, a £1.7 billion longevity swap transaction which was the third largest transaction on record and many other transactions adding to the record volume.

So far the longevity swaps market amounts to £9 billion of covered UK pension liabilities since the market took off in 2009.

James Mullins, Partner and Head of Buy-out Solutions, at Hymans Robertson, commented; “A series of significant pension scheme risk transfer deals expected to close during the fourth quarter of 2011 look set to ensure that 2011 will be a record year for pension scheme buy-ins, buy-outs and longevity swaps; with deals potentially topping £9 billion of UK pension scheme liabilities during 2011 alone.”

“Pension schemes are increasingly viewing buy-in deals simply as an investment strategy decision, and one that looks particularly attractive in the current market. 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.”

On the prospects for the market for 2012, James Mullins added; “2012 will be as buoyant as 2011 for the pensions risk transfer market as pension schemes continue to engage in buy-ins and longevity swaps. 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 £50 billion 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.”