De-risking deals in 2013 are on track to exceed last year's total of £4.5bn, JLT Employee Benefits has said.

According to the latest JLT Employee Benefits Buyout Market Watch Update, in the first half of 2013 over £2bn of buy-in and buyout transactions were completed as well as £3.6bn in longevity swap deals.

Insurers are reporting a healthy pipeline of potential deals and as a result JLT Employee Benefits said that there is an "optimistic mood" for a successful year in de-risking deals.

Martyn Phillips, JLT Employee Benefits director and head of buyouts, said: "Market sentiment towards bulk annuity deals continues to be favourable as it is increasingly acknowledged that pension liabilities calculated on an accounting basis are not a realistic estimate of a sponsor's exposure.

"Many schemes are undertaking buy-ins as precursor to full buyouts of the liabilities. This has a limited impact on the company's accounts as it represents a trustee investment decision rather than a settlement of the liabilities. It also allows the sponsor/trustees to insure the membership in tranches, building up to a fully secured scheme which can then be formally wound up.

"Companies 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 sponsor- rather than trustee-driven."

The largest buyout deal to date was in July 2013 when the EMI Group Pension Fund completed a £1.5bn buyout transaction with Pension Insurance Corporation (PIC), which covered all risks.

In early September, Rothesay Life insured £440m of liabilities of the InterContinental Hotels UK Pension Plan in a full buy-out transaction.

Other bulk annuity deals in the first half of this year included the Cobham, Smith & Nephew and the First Quench schemes.

Two longevity swap deals have also been completed so far this year. The largest to date was between Legal & General and BAE Systems, which covered £3.2bn of liabilities and was announced in February 2013.

The second deal was between the Bentley Pension Scheme and Deutsche Bank in May 2013, which covered £400m of liabilities.

JLT Employee Benefits said that the market in medically underwritten bulk annuities is fast developing. Partnership has recently completed the largest deal with an unnamed scheme.

With Legal & General, Just Retirement and Aviva able to provide medically underwritten quotations, JLT Employee Benefits said that more dates are expected to be announced within the next few weeks.

The report also found that buyout 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.

Phillips said: "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."

First published 03.10.2013

monique_simpson@wilmington.co.uk