The pension scheme risk transfer market has been bolstered by a flood of activity in the fourth quarter of 2009, bringing 2009's buy-ins total to £4bn and longevity swaps up to £3.5bn.

Hymans Robertson's latest analysis of the risk transfer market for final salary pension schemes shows that the value of buyouts, buy-ins and longevity swaps deals for 2009 amounts to over £7.5bn.

"During the fourth quarter of this year, the value of traditional buyout/buy-in deals struck has increased again to around £1.5bn and the longevity swap market saw another significant deal as Swiss Re confirmed it was the counterparty behind a £750million longevity swap with the Royal County of Berkshire Pension Fund," commented James Mullins, a senior liability management specialist at Hymans Robertson.

"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 added that the year is still young, and there could yet be another longevity swap before the end of 2009. "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."

The highlight of the fourth quarter, according to Hymans Robertson, was the £370million buy-in deal between the CDC Pension Scheme and Rothesay Life, which was the first significant risk transfer deal by a public sector pension scheme. It was also the first deal to be automatically completed once a pre-agreed trigger point has been met.

"We fully expect CDC to be the first of many pension schemes to make use of pre-agreed trigger points in this way," added Mullins.

Cadbury's buy-in deal, a £500million transaction with Pension Insurance Corporation, made it the biggest UK company to complete this kind of agreement, and Swiss Re's completion of a longevity swap with the Royal County of Berkshire Pension Fund was the first longevity swap deal by a public sector pension scheme.

"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.

"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," Mullins concluded.

For more information on the Swiss Re deal, see European Pensions.

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