|
It appears that
Punter Southall could have been correct with predictions that the
buy-out market would struggle in 2008 as it becomes apparent that
Q3 business was down by 24 per cent on the previous quarter.
Aon Consulting believes that the insurance buy-out market for defined
benefit (DB) schemes has been affected by nervous insurers who are
working to defy the impact of the current market turmoil. Leading
insurers have provided information to Aon which has shown that insurers
are starting to offer more conservative prices, and have largely
ceased to provide guarantees on the assumptions underlying their
quotations.
Despite activity slowing significantly, in particular since the
Lehman catastrophe, quarter three has remained strong with a total
value of business placed at £2.1bn, the second highest on
record. The year to date figure of written business in the buy-out
market is currently £6.3bn.
However, as markets have worsened, quarter three has seen insurers
beginning to hold back on the business they write. A number of deals
that were coming to the end of closing have, as a result of more
conservative pricing and a end to providing guarantees, have seen
their transactions extended, as some insurers are unwilling or unable
to complete in the short term.
Highly-rated corporate bonds and swaps have been identified by Aon
as principal concerns for insurers.
Paul Belok, principal and actuary at Aon, commented: “The
third quarter was again a busy period for the buy-out market, with
significant volumes of business placed and historically high levels
of quotation activity as sponsors and trustees explored what had
been identified as a window of opportunity to secure liabilities
(particularly for pensioners) at attractive prices.
“Steps now being taken by insurers, in response to the financial
market turmoil, mean that there is a major risk that the momentum
that has been built up in the buy-out market in recent quarters
is in serious danger of being lost. Whilst there are still circumstances
where deals can proceed, this is on something of an opportunistic
basis at present, with great care being needed to ensure that there
is certainty around pricing
and the costs of transaction,” Belok said.
Belok added that the key to the market outlook is how long pricing
uncertainties continue, and what level this pricing will be set
at once the position stabilises. “For any pension schemes
with significant investment in growth asset such as equities, securing
bulk annuities for all the scheme liabilities is further away now
than it was a few weeks ago.
“Overall our view is that the market will see a slowdown in
the spectacular growth that we have witnessed in the last year,
although in the longer term we expect the market to remain buoyant,”
he concluded.
- Pensions Age
October 2008
|
