Pension scheme risk transfer deals totalled £7.7bn in 2009, a figure that is expected to double in 2010, according to the Hymans Robertson Managing Pension Scheme Risk Report 2009.

Longevity swaps took off better than expected in 2009 with deals covering £4.1bn in pension scheme liabilities, and buy-ins and buy-outs accounted for £3.6bn of pension scheme deals, with the value of buy-ins more than three times that of buy-outs (£2.8bn versus £0.9bn).

The latter half of 2009 saw increased market activity, with quarter three the highest ever quarter for pension scheme risk transfers at £3.9bn, attributed to the longevity swap deals completed by RSA Insurance and Babcock International, as well as the Merchant Navy Officers Pension Fund buy-in of £500 million.

And Hymans Robertson is optimistic for 2010's results. "Based on the level of activity we are currently observing, we would not be surprised to see longevity swaps cover liabilities in excess of £10bn in 2010," commented James Mullins, senior liability management specialist at Hymans Robertson. "This is due to a number of drivers. One is that pension schemes are increasingly keen to manage away as much risk as they can.
BT's share price dropping due to concerns about the size of its pension deficit, and the assumptions used to calculate it is a case in point. Pension schemes need to understand the risks inherent in their schemes and manage them appropriately. Longevity is widely viewed as one of the biggest unmanaged risks they face."

Mullins added that 2010 looks positive, with Abbey Life, in conjunction with Deutsche Bank and Paternoster, nearing completion of a £2.5bn longevity swap for BMW's UK pension scheme liabilities - which would be the biggest ever risk transfer deal. "In anticipation of significant interest from UK pension schemes, UBS, the investment bank, also announced that it has recruited four pension specialists to set up its longevity swap offering."

The quarterly report from Hymans Robertson shows that Pension Insurance Corporation (PIC) took almost a third of market share in the buy-in/buy-out sector, followed by Legal & General with 22 per cent.

"It's interesting to note that two insurance companies - RSA Insurance and Friends Provident, who specialise in managing other people's risks - have now completed significant de-risking deals for their own final salary pension schemes. We expect to see more FTSE100 companies completing risk transfer deals for their pension schemes later in 2010 and beyond and would not be surprised to see other financial institutions on the list," Mullins said.

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