L&G leapfrogs Paternoster to top of buyout table

Legal & General has overtaken Paternoster as the leading provider of pension buyouts in terms of business written in 2008.2008 was confirmed as a record year for the bulk annuity market, hitting £8.2 billion, up almost threefold from 2007’s figures according to research from Aon Consulting based on analysis of data provided directly from the leading insurers.

Last year saw PIC and Prudential join L&G and Paternoster in the club of providers with £1bn-plus deals under their belt. Aon says it expects 2009 to be slower than 2008, but predicts a healthy future for the bulk buyout sector.

It says that in the space of just 12 months, market share has shifted significantly between providers. The number of organisations who are writing business has almost doubled to 11 and one new player, Pension Insurance Corporation, has entered the market to become the second biggest player. PIC had previously concentrated on “non-insurance” buyouts, such as Thorn and Telent, through its sister company Pension Corporation Investments before focusing on high value insured buyouts in 2008 including Thorn and Delta.

L&G took over the top spot in 2008 in terms of both value of business placed and number of cases. L&G has taken the lion’s share of the market by volume – writing 173 cases, almost double the number of the other nine firms in the top ten combined. In contrast to this high volume approach, Prudential, a long-standing player in the market who had a low profile in 2007, re-emerged as a big hitter in 2008, thanks in particular to Cable & Wireless, the first £1 billion bulk annuity deal.

Paternoster slipped from top spot into fourth place, with volumes slightly down on 2007. Of the other players, Norwich Union demonstrated its intent with the Friends Provident deal, and Rothesay took on Rank (and subsequently reinsured the pensioners with Prudential). New boys Lucida and major US annuity business MetLife both got off the ground. Aegon and AIG remained active, whilst Canada Life dipped a toe in the water. 2008 did, however, see Synesis Life no longer offering quotes.

Paul Belok, principal & actuary at Aon Consulting, says: “The big driver for growth was pensioner buyins, whereby a bulk annuity policy is secured for current pensioners and then being held by the scheme as an investment (rather than individual policies being bought for members and the scheme then being wound up) – about two-thirds of the cases over £100 million were on this basis.

“In the current economic climate, insolvencies can also be expected to result in additional bulk annuity activity in due course, but only where the assets are sufficient to ensure the scheme does not fall into the clutches of the Pension Protection Fund.”