12. 11
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
2004 2005 2006 2007 2008 2009 2010 2011
Forecast Q4 2011
Longevit y Swaps
Pension Insurance buy-out
Development of the insurance market for
pensions in the UK since 2004
Source: PC analysis, LCP Buyout Report 2010, Hymans Robertson 2010 and H1 2011
Update
1) 2009 figures include £1.9bn RSA longevity transaction completed in July 2009
15. Expectations of RPI to CPI gap
14
Party / Source RPI-CPI assumption
The Office for Budget Responsibility, Economic and
Fiscal outlook of March 2011
1.2%
FTSE350 Pension Fund accounting disclosures,
Hymans Robertson’s 2011 survey
0.7% to 2.8%
Mercer briefing July 2011 0.5% to 0.8%
Investment Bank instruments 0.1% to 0.2%
Our survey See later slides
17. RPI v CPI: Historic differences
• The average annual RPI-CPI gap from May 1997 to July 2011 was 0.88%
• Annualised standard deviation of monthly observed RPI-CPI basis was
1.27%
• RPI was above CPI for 85% of the period
– Main period of negative RPI-CPI due to rapid mortgage cost inflation
reduction over 2008
16
18. RPI v CPI density function
17
Histogram of RPI-CPI since May 1997 and approximated density function
Abnormal – e.g. falling interest rates
mean of – 2.9% (CPI higher)
Normal : mean of 1.1%
(RPI higher)