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Strong quarter for insurance buyout of DB schemes, says Aon

The insurance buyout market for defined benefit schemes has seen a strong second quarter, according to Aon Consulting.

The consulting firm says the total value of the market was £2.2bn in the first quarter of 2008, beating the previous year’s quarter by £350m, with the number of cases increasing by 12, from 75 to 87.

Aon Consulting principal and actuary Paul Belok says: “For the bulk annuity market, the start of 2008 was even stronger than the end of 2007, with a number of cases in excess of £100m again being the engine for growth. If current levels of activity continue and the conversion rate of quotes to placements is maintained then 2008 could see the market reach around £10bn.  This would represent 250 per cent growth compared to 2007 – £2.8bn placed – but it would still represent less than 1 per cent of all DB scheme liabilities in the UK.
 
“Whilst Legal & General and Paternoster continue to be major players in the market, the first quarter of 2008 also saw a host of new providers writing their first cases – Rothesay Life – the Goldman Sachs subsidiary – and Lucida both landed high profile schemes, and MetLife also got off the blocks.”

Aon says a key driver for the interest in bulk annuities has been the significant reduction in prices in recent months, which it says is a result of the competitive market and the increase in long-dated corporate bond yields.

It says this is one area where the credit crunch has actually been beneficial.

Belok says: “A number of pension schemes and employers have recognised that the timing is attractive for either a full or a partial buyout, particularly of liabilities relating to pensioners.  The pipeline has remained extremely strong since the end of the quarter and Aon is currently advising a number of pension schemes who are actively exploring the market.”

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