LONDON, 09 February 2009

- 2008 was confirmed as a record year for the bulk annuity market, with a total £8.2 billion of business written (up from £2.8 billion in 2007), according to research from Aon Consulting, a leading pension, benefits and HR consulting firm. Based on analysis of data provided directly from the leading insurers, competition is intensifying in the market, while Legal & General has leapfrogged Paternoster - which has slipped into fourth place - as the market leader by value of deals underwritten.

 In the space of just 12 months, market share has shifted significantly between the providers. Indeed, the number of organisations who are writing business has almost doubled to 11 and one new player, Pension Insurance Corporation, has burst on to the scene to become the second biggest hitter. 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. Legal & General 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, has 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 the first casualty, with Synesis Life ceasing to operate.

Bulk annuity market – movers and shakers 2008 / 2007

Commenting on the results, Paul Belok, principal & actuary at Aon Consulting, said: “Whilst 2008 saw only a 5% increase overall in the number of cases placed, the value of those deals soared by 190%. During the year, most providers witnessed an unprecedented level of interest from defined benefit pension schemes and their sponsors. 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.

 “A healthy increase in competition resulted in a more balanced spread of business amongst the providers. We have started to see different strategies emerge, with some providers focused on doing a small handful of big deals, and others interested in smaller cases but greater volumes.

 “The future is not as bright as one might expect from a market that has grown so rapidly. The fourth quarter in 2008 saw a slowdown following the collapse of Lehmans and in particular the impact this had on the corporate bond market. Lack of liquidity and uncertainty around pricing and risk of default gave the insurers headaches because corporate bonds are key assets they use to back annuities. This meant that while there continued to be attractive deals to be done, some insurers remain cautious.

 “We expect growth to slow in 2009 but the longer term outlook remains positive provided pricing remains attractive, as defined benefit pension schemes are increasingly seen as a legacy issue by sponsors who will want to remove them from the balance sheet once it becomes affordable.

 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.”

 Ends For more information contact

Susie Patterson / Leo Wood 

0207 269 7250 / 137

susie.patterson@fd.com / leo.wood@fd.com

David Skapinker

020 7505 7478

david.skapinker@aon.co.uk

Notes to Editors

2008 Q4 Results

Business placed

Despite the apparent success story in 2008, for the market as a whole the fourth quarter saw a drop in both the value of business placed (down to £1.8 billion compared with the previous quarter of £2.1 billion) and the number of cases (just 43 compared with 59 previously). The quarterly results are in the graph below.

Graph 1: Number and value of business placed

Quotation activity

*Figures will include duplication relating to schemes which approached more than one insurer

*Data on quotation activity not provided by all insurers. 

About Aon Consulting

Aon Consulting Worldwide is among the top global human capital consulting firms, with 2007 revenues of US$1.352 billion and more than 6,000 professionals in 117 offices worldwide. Aon Consulting is shaping the workplace of the future through benefits, talent management and rewards strategies and solutions. Aon Consulting was named the best employee benefit consulting firm by the readers of Business Insurance magazine in 2006, 2007 and 2008. For more information on Aon, please visit http://aon.mediaroom.com

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The level of quotation activity also saw a downturn from the peak earlier in the year, suggesting that the outlook may be less strong for the market than was previously the case. The value of quotations issued reduced to £76 billion from £84 billion in the previous quarter, whilst the number of quotations dropped from 519 to 470.

 Graph 2: Number and value of quotations being provided