The report, prepared using detailed data provided by insurance companies, shows that at least ten FTSE 100 pension schemes are evaluating comprehensive quotations to buy out some or all of their pension liabilities during 2008.
The largest buyout transaction completed to date has been the and#163;800 million deal to insure current pensioners in the Pandamp;O Pension Scheme, but LCP’s report finds that this milestone might soon be eclipsed. It says seven quotations have been issued by insurers for potential transactions over and#163;1 billion.
The firm predicts that the pension buyout market in 2008 will exceed and#163;10bn, achieving a three-fold increase on 2007 volumes. It cites competitive market rates, innovative structures and the ability to partially transfer risk to an insurer without needing to close down the pension scheme as key drivers for companies and trustees pursuing a buyout. It also points out that the potential for further growth in the market is huge, with the and#163;10bn business predicted for this year still constituting less than 1 per cent of the potential market of private sector DB pension schemes.
The report revealed that the insured buyout market over 2007 was dominated by Paternoster which had 50 per cent of the market by value and Legal andamp; General with 40 per cent. Norwich Union had the next highest market share with 3 per cent, followed by Aegon on 3 per cent, Prudential with 2 per cent and AIG Life with 1 per cent.
The report’s author says: “We see the first major FTSE 100 pension scheme buyout as inevitable and likely to be imminent. While pricing remains attractive, growth in the buyout market will be very strong.