Insurers expect total buyout activity to exceed £6bn during 2013, according to the latest analysis of the pension fund buyout market from an employee benefit provider.
JLT Employee Benefits (JLT) said that during the final quarter of 2012 over £1.5bn of buyout business was transacted, giving a total of £4bn over the year.
According to early indications, the momentum seen in Q4 2012 has been maintained into 2013, especially within the small and medium end of the market as insurers continue to offer flexible contract structures and payment terms, JLT said.
Martyn Phillips, JLT director, said that pension schemes continued to seek de-risking solutions during 2012 and he expects the trend to continue, especially since there are still gilt related transaction opportunities because of the low gilt yield environment.
This means that schemes with the right investment profile can continue to exchange their gilt holdings for a pensioner buy-in contract with little or no additional cost, he said.
Prices have remained relatively stable throughout 2012, although buyout prices decreased slightly in Q4 2012, according to JLT.
Phillips said: "It is also encouraging that bulk annuity prices remain relatively stable, which may enable a pick-up in activity in 2013 as schemes continue their aggressive drive towards de-risking. We anticipate a jump of around 50% in the buyout market compared to last year, equating to more than £6bn being transacted this year."
Most of the deals in 2012 were for pensioner buy-ins, with the largest being the £680m Merchant Navy Officers Pension Fund transaction with Rothesay Life, and this trend is expected to continue.
More medically underwritten buy-in transactions are also expected, following the success of Partnership Assurance's medically underwritten buy-in transaction in 2012, which was the first of its kind.
Phillips said: "We anticipate more providers will offer medically underwritten solutions for pensioner buy-ins." He added: "More generally, we expect that other insurers will enter the de-risking market during 2013, which would provide an even more competitive market for schemes."
This latest analysis echoes a report from the research firm Clear Path Analysis, which stated that more longevity swap transaction are expected to take place in 2013 as large schemes get ready to de-risk.
Even so, JLT said that because of concerns surrounding the Eurozone debt crisis, buyouts will remain unaffordable for many schemes especially if sponsors are unwilling to release capital in the current economic climate if additional cash is required from them.
First published 05.04.2013
monique_simpson@wilmington.co.uk
