UK - The insurance buyout market has reached its peak in terms of competitiveness and the number of players it can sustain, suggests Paul Jayson, partner and actuary at consultants Barnett Waddingham.
At a buyout roundtable seminar in London, Jayson said the number of FSA-regulated players has boomed from just two in 2005 to the current 12, among which are companies such as Paternoster, Rohtesaylife and Synesis Life.
The factor of competition, together with the effects of the credit crunch on corporate yield values, has also driven down prices, pushing buyout propositions to their current yet most competitive positions.
"I think 12 players is too many to be sustainable," Jayson said, adding a number of larger players will knock out other, smaller firms, or force mergers.
Consequently, Jayson thinks the buyout market will become less competitive, rather than the other way around: "Less competition leads to higher prices."
The non-insurance- related buyouts, such as offered by Citigroup, the Occupational Pensions Trust and Pension Corporation, will also suffer, since the government has threatened to legislate in the fear of a "commodification" of pension funds.
Secondly, these buyouts are harder to structure and trustees are less comfortable with the proposition, and hence these offerings are less popular, he suggests.
Jayson concludes some of these non-insurance buyout players will need to adjust their business model, and any deal that is closed should keep the Pensions Regulator involved.
This latest news comes as Paternoster today announces the launch of a buyout affordability index, looking at the cost of securing liabilities of deferred and pension members of a typical defined benefit scheme, to be published shortly after the end of each quarter.
In the first quarter, the cost of securing a typical group of deferred member liabilities fell by 10%, while for pensioner members it reduced by 6%, Paternoster said in its first study.
The company added: "In the same period, the cost of securing all liabilities fell by 8%, but rose by 3% in April."
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