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Contact: Mags Andersen
Tel: +44 20 7178 3513

UK
London, 19 October 2009

• Long term trend in UK buyout market is upwards as 2009 sales of insured bulk annuities reach at least £2.4bn
• Transactions since 2007 involving sizeable pension plans reach £10bn

New data issued by Mercer shows that the UK insured bulk annuity market remains active in 2009 and is on a long-term upward curve, with pension plans likely to purchase more than £3bn of bulk annuities this year. According to Mercer, this is higher than the long-term historical trend of around £1bn a year, though likely to be significantly less than in 2008 when sales were around £8bn.

Insurers’ sales for the third quarter of 2009 exceeded £900m, and pension plans have purchased more than £2.4bn of bulk annuities during the first three quarters of 2009. At least eight insurers have written bulk annuity business in 2009, demonstrating that the market continues to offer choice for plan trustees and their sponsoring employers.

David Ellis, a principal at Mercer, said: “Taken against 2008, 2009 has been flat in terms of activity and down in terms of deals completed but trustees and employers are right to have been cautious given global events. However, this is a lumpy business – for example, 25 per cent of the value of deals in 2008 came from only two transactions. In 2009, clients are continuing to transact with insurers and there are good deals to be had.

“Looking forward, any increase in public sector borrowing and the end of quantitative easing suggest that buyouts and buy-ins may well become more affordable. However, the implementation of Solvency II in 2012 may lead to higher prices,” he said.

Insured buyouts and buy-ins remain key ways to manage what are increasingly, for many, legacy pension commitments and Mercer expects these markets to grow strongly in the future.

The effects of the credit crisis remain, with reduced funding levels and corporate cash constraints affecting the ability of many trustees and their sponsoring employers to purchase bulk annuities. Nonetheless, significant deals continue to be done. Recent large deals include the Denso schemes ‘all-risks’ buyout with PIC, worth over £100m, and the MNOPF pensioner buy-in deal with Lucida worth around £500m.

Mercer research shows that more than £10bn worth of large bulk annuity deals (each involving a sizeable pension plan and a premium over £50m) have now been completed since the start of 2007. Overall bulk annuity sales since the start of 2007 total more than £13bn.

David Ellis commented: “In the context of the nominal £1 trillion of defined benefit liabilities remaining in the private sector, these figures are a drop in the ocean – but they are not trivial in themselves and do demonstrate continued demand which is growing over the longer term.”

“Sophisticated strategies in relation to investments and liabilities have a strong role to play in managing the run-off of legacy pension plans. For many, however, using a buyout and wind-up strategy to remove the plan entirely sooner rather than later is the real goal,” concluded Mr Ellis.

Notes for Editors
The data is taken from figures obtained by Mercer from 11 UK insurance companies. The figures exclude the transaction between the UK pension schemes of RSA Insurance Group plc, Goldman Sachs International Inc. and Rothesay Life Limited announced in July 2009 and the transaction between a UK pension scheme of Babcock International plc and Credit Suisse announced in May 2009 as these are not insured bulk annuities.

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Contact: Mags Andersen
Mercer Press Office
Tel: +44 20 7178 3513