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Capacity of buyout providers in doubt

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  • Capacity of buyout providers in doubt

UK - Consultancy firm Aon has warned pension buyout providers are buckling under the weight of current buyout demand and are struggling to cope with requests.

Raising questions over the capacity of insurers who offer pension scheme buyouts in particular, Paul Belok, principal and actuary at Aon Consulting, today said the stress has had an impact on the speed at which quotations are being turned around.

Moreover, Belok has found buyout providers are becoming more selective in the schemes to work with, as well as becoming less competitive.

"For cases below £20m (€25.3bn), [these effects have] also meant there is now less competition," he said commenting on the firm's research of the buyout market in the second quarter of this year.

Belok contrasts these developments with the increased interest from the large pension schemes, including a number of schemes with assets worth over £1bn, arguing the market is not always able to handle such large schemes.

"These cases are too large for many providers to swallow whole, so we are advising clients of this size on issues relating to syndication, co-insurance and the most effective ways of breaking things down into more 'bite size' chunks so that they can then be placed with more than one insurance company," he said.

Aon's research found the insurance buyout market for defined benefit (DB) pension schemes is now recording a third successive strong quarter.

The study shows the market surged 80% between March and June compared with the first quarter in 2008, having now reached a value of £2.7bn - £1.2bn more than the first quarter of 2008.

"The pensions buyout market has continued to be a beneficiary of the worsening economic conditions, picking up record levels of business during the second quarter of this year," commented Belok.

"Interestingly, whilst the volumes transacting are historically high, we have seen the first casualty in the battle for market share, with Synesis pulling out of the fray.  On the other hand, Swiss Re is a new entrant and there may be more to come,"  he added.

Aon expects to see continuing "jockeying for position" and subsequently rationalisation of the participants in the market in due course.

If you have any comments you would like to add to this or any other story, contact Carolyn Bandel on +44 (0)20 7261 4622 or email carolyn.bandel@ipe.com

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