Risk reduction market posts more than £7.5bn of deals in 2009

The consultant's analysis of the risk transfer market for final salary pension schemes found the value of traditional buyout / buy-in deals had increased to around £1.5bn in the fourth quarter of 2009.

In addition to this, it said the longevity swap market had seen another significant deal as Swiss Re confirmed it was the counterparty behind a £750m longevity swap with the Royal County of Berkshire Pension Fund (Global Pensions; December, 15, 2009).

Hymans Robertson senior liability management specialist James Mullins explained: "In total, this means that the risks associated with around £2.25bn of pension scheme liabilities were passed across to insurance companies and banks during the fourth quarter of 2009 alone and over £7.5bn since the start of 2009."

Mullins said there could be further deals to come this year - as there were still six working days remaining before the end of 2009.

He added: "At least one of the longevity swap providers still has ‘exclusivity' on another longevity swap deal worth well in excess of £1bn, which is due to complete early in the New Year."

Hymans Robertson said deals of particular note in the fourth quarter included:

- The £370m CDC Pension Scheme buy-in with Rothesay Life - which Mullins said was the first significant risk transfer deal by a public sector pension scheme and the first deal to have been automatically completed once a pre-agreed trigger point had been met.

- Cadbury became the biggest UK company whose pension scheme has completed a significant buy-in deal when the Cadbury Pension Fund completed a £500m buy-in deal with Pension Insurance Corporation.

- Swiss Re became the third provider to complete a longevity swap with a deal with the Royal County of Berkshire Pension Fund which covers £750m of their pensioner liabilities. This was the first longevity swap deal by a public sector pension scheme.

Mullins explained: "It is likely that some highly material longevity swaps will be completed early in the New Year and we fully expect longevity hedging to continue to receive significant interest during 2010 and beyond.

"We believe that longevity hedging deals will be most common for large pension schemes who believe that the best way for them to de-risk is to carry out a DIY buy-in; that is to use interest, inflation and longevity swaps directly to reduce risk."

He added: "In order to assess the potential attractiveness of a longevity swap, companies and trustees need to apply sophisticated modelling techniques to accurately understand their own scheme's longevity risk based on the unique characteristics of their membership."

Hymans Robertson said the new deals completed during the fourth quarter meant the buy-in/buyout market continued to be dominated by Pension Insurance Corporation, Legal & General, MetLife, Lucida and Rothesay Life during 2009.