The capacity of the insurance buyout market has come under question following reports that the British Steel Pension Scheme (BSPS) trustees are looking to offload the £10.5bn scheme.

According to a Sky News report, trustees of the scheme have opened discussions with a number of insurance giants as they seek to fully safeguard the pensions of thousands of pensioners.

Commenting on the reports, Lincoln Pensions managing director, Alex Hutton-Mills, said: “Rumours of such a large transaction in a year already full of record deals will prompt questions about the capacity of the insurance buy-out market. Lumpy deals of this nature may also affect demand-supply dynamics and pricing.”

The deal with BSPS would be almost double the £4.6bn Rolls-Royce deal completed by Legal and General in June, covering approximately 33,000 members.

According to Sky News, Rothesay Life are understood to be one of the parties involved in talks with the trustees, along with Legal and General and Pensions Insurance Company.

“Insurers will need to balance the desire to meet the ever-expanding demand with their ability to raise additional capital, source Solvency II compliant assets and secure adequate re-insurance (in particular for deferred members) to underwrite new policies. Some insurers will be better placed than others to find the right balance,” Hutton-Mills added.

“Trustees will also need to be vigilant to less secure insurance solutions, and ensure they have performed sufficient diligence on the ability of potential providers to take on a scheme of this size.”

It is thought discussions are at a feasibility study stage and any deal is unlikely to take place until the end of next year.

The buyout market is set to remain at historically high levels over 2019, with Willis Towers Watson estimating that roughly £30bn of deals could be done over the year.

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