Despite levels of activity lower than those in 2008, the UK buyout market has remained active and is on a long-term upward curve, reports Mercer.

The financial consultant expects 2009 to deliver purchases of more than £3bn of bulk annuities, which is higher than the long-term historical trend of around £1bn a year. However, this will still fall short of 2008's sales of around £8bn.

The third quarter of 2009 showed sales exceeding £900million, with pension plans purchasing more than £2.4bn of bulk annuities from the start of 2009 to the end of the third quarter.

"Taken against 2008, 2009 has been flat in terms of activity and down in terms of deals completed but trustees and employers are right to have been cautious given global events," commented David Ellis, a principal at Mercer. "However, this is a lumpy business - for example, 25 per cent of the value of deals in 2008 came from only two transactions. In 2009, clients are continuing to transact with insurers and there are good deals to be had."

Ellis explained that looking ahead, increases in public sector borrowing and an end to quantitative easing could make buyouts and buy-ins more affordable. "However, the implementation of Solvency II in 2012 may lead to higher prices."

Reinforcing the positive outlook is Pension Corporation, which expects the final three months of 2009 to be the busiest for pension insurance buyout and buy-ins since the third quarter of 2008, when around £2bn of risk was transferred.

The risk management solutions provider said its latest Pension Risk Transfer Index shows that overall affordability for pension insurance is currently at its most favourable level since September 2008.

David Collinson, partner at Pension Corporation, added: "Several key factors in the market are helping to drive sponsors and trustees to offload as much risk as they are able to afford during this quarter. Perhaps the most significant of these is that the overall affordability for schemes is at its most favourable since September 2008, just before Lehman collapsed.

"However, it should be noted that Trustees, whilst keenly interested in price, are now considering other factors when they wish to transact. One of the key innovations which we are increasingly being asked to provide is the immediate transfer of investment risk during the period of exclusivity before contracts are signed," added Collinson.

Share Story: