The appetite for pension de-risking solutions remains strong among both employers and trustees, according to a report by JLT Employee Benefits.
Its Buyout market watch update found that total de-risking deals in 2013 are set to exceed last year’s figure of £4.5 billion.
In July 2013, the EMI Group Pension Fund completed a £1.5 billion buy-out transaction with Pension Insurance Corporation, which is the largest buy-out deal to date.
Also, in early September 2013, Rothesay Life insured £440 million of liabilities in the InterContinental Hotels UK Pension Plan in a full buy-out transaction.
There have also been two longevity swap deals agreed so far in 2013. The largest longevity swap deal to date, announced in February 2013, was between Legal and General and BAE Systems, and covered £3.2 billion of liabilities. And in May 2013 between the Bentley Pension Scheme and Deutsche Bank, covering £400 million of liabilities.
The report found that the market in medically underwritten bulk annuities is fast developing, with several transactions announced in the first half of 2013. While initial deals were all written by Partnership Assurance, other insurers, such as Legal and General, Just Retirement and Aviva, are also able to provide medically-underwritten quotations and more deals are expected to be announced within the next few weeks.
It also found that buy-out affordability has improved for both deferred and pensioner members, mostly due to increases in long-dated gilt yields, which rose further than long-dated corporate bond yields over the six months to 30 June 2013.
Martyn Phillips (pictured), director, head of buy-outs at JLT Employee Benefits, said: “Market sentiment towards bulk annuity deals continues to be favourable because it is increasingly acknowledged that pension liabilities calculated on an accounting basis are not a realistic estimate of an employer’s exposure.
“Many schemes are undertaking buy-ins as a precursor to full buy-outs of the liabilities. This has a limited impact on the organisation’s accounts as it represents a trustee investment decision rather than a settlement of the liabilities. It also allows the employer or trustees to insure the membership in tranches, building up to a fully-secured scheme, which can then be formally wound up.
“Organisations remain very keen to de-risk and continue to see a buyout as their longer-term objective. This is confirmed by the fact that the majority of the larger deals completed over the recent past have been employer, rather than trustee, driven.
“Meanwhile, insurers remain keen to transact, given the right terms, and are open to innovation.
“We expect 2013 to be viewed as a healthy year for de-risking deals for the market as a whole, with business volumes on track to surpass 2012 figures. Insurer pipelines remain positive, and our discussions with the insurers indicate continuing optimism for the end of the year.”