UK - Longevity deals by pension funds could double in 2010 as the market is starting to see convergence on price following the first few deals, according to market specialists.
Speaking at the IMN UK & Irish Pension and Investing Summit in Dublin yesterday, Brian Tijan, director of the life finance group at Credit Suisse, said completed deals have so far been based in the UK, and the firm is now working on a third deal which is expected to be completed by the end of the year.
Credit Suisse was the counterparty in the deal arranged by Babcock International to hedge the longevity of three of its pension schemes. Two of the deals have been completed - for the Devonport Royal Dockyard scheme and the Rosyth Royal Dockyard scheme - while the longevity hedging of the Babcock International Group Pension Scheme is still under discussion. (See earlier IPE article: Babcock edges closer to completing longevity deals)
Moreover, while only three deals have been completed in the UK longevity market this year - the two Babcock schemes and one for Royal & SunAlliance - Tijan said there is a "pretty decent pipeline of business" in this sector and the expectation is that the market as a whole could complete five or six longevity deals in 2010.
He pointed out that the whole process takes a pension fund approximately a year to complete, from the initial discussion to concluding the transaction, so those pension funds expected to move forward with deals next year had already begun to look at the issue in 2008 or earlier this year.
"We expect there to be twice as many deals in 2010 as 2009. We are starting to see deals happen now where the pricing is right".
He acknowledged that some pension funds have concerns regarding the lack of tangible assets in which they can invest, but said Credit Suisse is working closely with advisers to make sure they understand the market and so pension schemes can feel confident about their trust in a third party.
Andrew Reid, from Credit Suisse, also highlighted growth in the company's pipeline business for liability hedging. He revealed 70 pensions schemes have provided the firm with data for pricing and said while "most are dipping their toe in, we would expect half a dozen or more to take it forward in the next year, with most of this business being "heavily consultant-led".