A risk transfer deal is on the cards for one in four FTSE 100 companies by the end of 2012, reports Hymans Robertson.

In the company’s latest Managing Pension Scheme Risk report, for Q2 2010, Hymans Robertson found that one in four companies are expected to have completed a material pension scheme risk transfer deal, based on market analysis.

The last year recorded a record total of £12.5bn of pension scheme risk transfer deals, with transactions such as the British Airways/Rothesay Life £1.3bn buy-in contributing to this.

“Based on the level of activity we are currently observing in the market, we expect one in four FTSE 100 companies to have completed a material pension scheme risk transfer deal by the end of 2012,” said James Mullins, senior liability management specialist at Hymans Robertson. This is due to a number of drivers. One is that market conditions have improved over the last year meaning that risk transfer deals are more affordable for many UK pension schemes.

“Currently, the market is ideal for pension schemes to be able to replicate the DIY buy-in deal that RSA Insurance completed with Goldman Sachs in July 2009. Pension schemes can make use of the current apparent anomaly in the Government bond markets to fund a longevity swap, with potentially no adverse impact on the scheme’s financial position – despite the removing material risks. As such, I would not be surprised to see another one of the UK’s largest pension schemes completing a DIY buy-in deal over the summer – i.e. a deal which combines a longevity swap (to remove longevity risk) with a Liability Driven Investment strategy (to remove investment risk).”

Mullins added that risk transfer deals form part of a vicious circle, with the more pension schemes tackling pension scheme risk, the more pressure there is on other pension schemes to follow suit.

He also cited the significant developments we have seen in the longevity swap market, with February’s deal between Deutsche Bank, Paternoster and Abbey Life for the £3bn longevity swap of BMW’s UK pension scheme liabilities, and other multi-billion pounds longevity swaps that are nearing completion.

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