One-third of FTSE 100 companies have carried out derisking deals

One-third of FTSE 100 companies have now taken proactive steps to remove longevity risk through bulk annuities and longevity swaps, according to figures from Aon.

The 32 companies represent an even bigger proportion – 37% – of the 86 FTSE 100 companies with defined benefit (DB) schemes.

They include BAE Systems, Kingfisher, Morrisons and National Grid – all of which appointed Aon to lead their transactions – as well as Aviva, BT Group and HSBC.  

In most cases, the companies achieved their derisking aims via a pensioner buy-in or a pensioner longevity swap, but Aon said a growing number of FTSE 100 companies such as Rolls-Royce and Rentokil Initial had instead opted for a buyout. 

The value of completed risk settlement transactions by FTSE 100 companies has now reached £70bn (€78bn), said Aon.

The consultancy was commenting after an announcement yesterday that National Grid had concluded a £2.8bn buy-in with Rothesay Life, adding to an already record year of activity in the de-risking market. 

John Baines, partner in Aon’s risk settlement group, said: “Reaching £70bn of risk transfer is a significant landmark and is indicative of the increasing attention that pensions risks are getting at the most high-profile UK businesses.”

He added: “Insurance solutions send a very clear message to analysts and shareholders that management are proactively addressing the issue of pension risk.”

According to Baines, following some of the recent buy-outs the share price of the companies involved had increased. 

He predicted that the number of pension risk settlement transactions will accelerate as they climb the agenda of FTSE100 companies and become seen as a reliable way to remove risk and secure pensioner benefits.

Martin Bird, senior partner in Aon’s risk settlement group, said one common factor in these transactions was the appeal to insurers of partnering with high profile organisations.

Separately, new figures from the Pension Protection Fund (PPF) showed that the aggregate funding position of UK private sector DB schemes improved steadily during September. 

The aggregate deficit of UK DB schemes in the lifeboat scheme’s 7800 Index fell from £162.9bn at the end of August to £149.0bn at the end of September – an improvement of 8.5%. This meant that UK schemes were on aggregate 92.2% funded.