UK - Pension scheme risk transfer deals are likely to surge among FTSE100 companies this year and next, according to consultancies Hymans Robertson and LCP.

Hymans Robertson tallied a record total of £12.5bn of risk transfer deals completed for the year to 30 June and said it expected this figure to "grow significantly" in the coming years.
It predicted that, by the end of 2012, more than a quarter companies in the FTSE100 will have completed a pension scheme risk transfer deal.

LCP (Lane Clark & Peacock) sees the surge as part of a larger de-risking trend, where companies and trustees increasingly protect themselves against market volatility by switching investments into assets that more closely match their liabilities.

It cited RSA's deal with Goldman Sachs and its subsidiary Rothesay Life in 2009, which saw the first pension scheme of a FTSE100 company enter into a longevity swap, while 2010 saw a £3bn longevity hedge taken out by BMW - the biggest longevity deal to date.

More recently, British Airways completed a record £1.3bn buy-in with Rothesay Life, becoming the eighth FTSE100 company to complete a material risk transfer deal for its pension scheme.

Bob Scott, a partner at LCP, said: "There have been a lot of insurance buyouts and liability hedges recently, as pensions schemes look to de-risk, and this is going to be an ongoing trend - we expect to see more."

According to Hymans Robertson's estimates, more than £6.3bn worth of risk transfer deals were completed in the first half of the year, with the remaining six month set to be offer record, with risk transfer deals expected to approach £15bn, it said.

James Mullins, senior liability management specialist at the firm, pointed to a number of reasons for the trend.

"One is that market conditions have improved over the last year, meaning that risk transfer deals are more affordable for many UK pension schemes," he said.
"Currently, the market is ideal for pension schemes to be able to replicate the DIY buy-in deal that RSA Insurance completed with Goldman Sachs in July 2009. 

"Pension schemes can make use of the current apparent anomaly in the government bond markets to fund a longevity swap, with potentially no adverse impact on the scheme's financial position - despite the removing material risks."
He said pension schemes were also increasingly keen to manage away as much risk as possible.

"There is a snowball effect," he said.

"The more pension schemes that tackle pension scheme risk, the more pressure there is on other pension schemes to follow suit."