Bulk buyout market falters but schemes are seeking out innovative options

The insurance buyout market for defined benefit schemes has continued to fall, with the value of deals down over 50 per cent in the first quarter of 2009.

Research from Aon Consulting shows appetite among very large schemes has dwindled compared to the high point in 2008, but still shows a reasonable level of interest given exceptional market conditions.

Aon says a number of schemes are now investigating innovative alternatives to buyouts due to current market factors.

The consultancy’s Q1 buyout survey shows the value of business placed in Q1 2009 was £888m, compared to £1,832m in the previous quarter, down for the third quarter running.

Despite this, the number of cases placed was static at 44, compared to 43 in the previous quarter. The largest case during Q1 of 2009 was Leyland Daf at £230m.

Paul Belok, principal & actuary at Aon Consulting, says: “Although the headline numbers do not appear to be very strong, the bulk annuity market has in fact been relatively resilient given exceptional market conditions.

“Whilst we have seen a tailing off from the extremely high levels of interest that we saw last year, those cases that are continuing to investigate the market are doing so seriously.

“These schemes tend to have a relatively cautious investment policy and are often reasonably well funded – other situations can be linked to M&A activity, a large (often foreign) parent seeking to close out its defined benefit pensions exposure in a subsidiary, or an insolvency situation.”