The market volume of longevity transactions saw a significant decline in 2012, from five deals in 2011 worth £7bn of liabilities, to two transactions totalling £2.2bn in 2012, a report from Legal & General has found. The bulk purchase annuity market also declined, from £5.2bn for 2011 to £4bn last year.

According to the report, Overview of the pension scheme insurance de-risking market for 2012, the decline in the number of longevity deals can be attributed to the complexity of these transactions compared to bulk annuity deals.

“The small number of transactions in 2012 is partly indicative of the fact that these arrangements have been seen as the preserve of very large pension schemes. Many projects also stalled due to either mismanagement or unforeseen complications,” it explained.

While the market volume for bulk purchase annuity deals declined, the report attributes this to the two transactions in 2011 totalling £2bn from schemes exiting the PPF, which are legally obliged to purchase bulk annuities if possible, inflating the 2011 total rather than a decline in de-risking appetite in 2012.

The year ahead is expected to see relatively few schemes executing longevity deals, yet the market this year has begun with the £3.2bn longevity insurance arrangement for the BAE Systems 2000 Pension Plan placed with Legal & General in February.

Demand for bulk annuity deals is expected to increase in 2013, as rising gilt yields combined with positive returns in the equity markets in recent months has improved pensions schemes’ funding levels, therefore making bulk annuities more affordable. Pensioner buy-ins is expected to remain the most popular option for schemes.

Legal & General’s head of insurance de-risking solutions for pension schemes Tom Ground said: “2012 proved to be a very strong year for the bulk annuity market, with strong premium volume despite the persistence of low yields. We expect the interest in insurance based de-risking solutions to continue to be strong in 2013 from both companies and trustees, in particular with pension scheme funding appearing to be improving.”

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