Buy-out giant Paternoster has been knocked off the top spot in the bulk annuity stakes by Legal & General (L&G), now the market leader by the value of deals it has underwritten.

2008 has been confirmed by Aon Consulting as a record year for the bulk annuity market, reaching £8.2bn, an almost threefold increase from 2007. Pension Insurance Corporation and L&G joined Paternoster and L&G in what Aon has labelled the '£1bn plus club'.

Pension Insurance Corporation, which appeared on the buy-out scene in the last 12 months, has taken second place in the table, and had previously concentrated on 'non-insurance' buy-outs, completing work for Thorn and Telent, through Pension Corporation Investments.

L&G takes buy-out top spot for 2008L&G wrote 173 cases in 2008, almost double the number that the other nine in the top ten achieved altogether.

The news comes despite Paternoster's earlier announcement that £2.7bn worth of assets were transferred to the company in 2008.

"Whilst 2008 saw only a five per cent increase overall in the number of cases placed, the value of those deals soared by 190 per cent," commented Paul Belok, principal and actuary at Aon. "During the year, most providers witnessed an unprecedented level of interest from defined benefit pension schemes and their sponsors. The big driver for growth was pensioner buy-ins, whereby a bulk annuity policy is secured for current pensioners and then being held by the scheme as an investment (rather than individual policies being bought for members and the scheme then being wound up) - about two-thirds of the cases over £100million were on this basis."

Belok said the year saw a healthy increase in competition, which resulted in a more balanced spread of business. "We have started to see different strategies emerge, with some providers focused on doing a small handful of big deals, and others interested in smaller cases but greater volumes," he added.

Aon expects 2009 to see a slowdown in growth, although the longer-term outlook remains positive so long as pricing remains attractive. "In the current economic climate, insolvencies can also be expected to result in additional bulk annuity activity in due course, but only where the assets are sufficient to ensure the scheme does not fall into the clutches of the Pension Protection Fund," he concluded.

The other names in the top ten were Norwich Union, Rothesay Life, Lucida, MetLife, AEGON, AIG and Canada Life.

- Pensions Age February 2009

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