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* After record 2014, Q1 saw company deals worth 800 mlnpounds
* Deficits, deal complexity hitting volume of deals
* Just 27 pct of firms looking to do a full deal - Aon
By Carolyn Cohn
LONDON, Aug 3 (Reuters) - A revenue boost to British lifeinsurers from companies looking to pass on their pension schemerisk is looking uncertain, as low interest rates make schemedeficits wider and deals harder to reach.
Insurers are putting their faith in so-called bulk-annuitydeals to fill a hole left by changes to the pensions industryearlier this year, which have at least halved demand fromindividuals for annuities providing an income for life.
Leader of the pack in bulk annuities last year was Legal &General, with two deals alone bringing in more than 5billion pounds ($7.8 billion) in premiums.
But after a record 13 billion pound year for bulk businessin 2014 for the sector as a whole, sales fell off in the firstquarter of 2015 to 800 million pounds ($1.3 billion) ofpremiums, compared with around 4 billion in the same quarter ayear earlier, analysts say.
While business traditionally picks up in the second half ofthe year, a weaker than expected showing as insurers begin toreport earnings this week may cut overall revenue growth fromannuity sales.
The complexity of these bulk deals means some can take manymonths to be structured, making the deal pipeline irregular andhard to plan for. The administrative burden for scheme trusteesand competition from new-entrant insurers also makes dealsharder.
Mark Paxton, bulk annuity consultant at Barnett Waddingham,said for insurers expanding into bulk annuities from individualdeals, "it's taking longer than they thought, they are findingout how difficult it is."
As a result, second-quarter data, due to be released asinsurers begin reporting earnings this week, is expected to belight, said Gordon Aitken, analyst at RBC.
Companies with big pension scheme deficits are looking toclose them to new members and then either continue to run theschemes themselves, or sell the risk on to an insurer, therebyremoving all liability from their balance sheets.
But prolonged low interest rates means many company schemesdo not have enough money in them. Funding is currently below 85percent, data from the Pension Protection Fund showed.
To close the gap, companies have several options. One is toinvest in riskier assets to try to improve returns; another isto hope interest rates rise to help make their income-bearinginvestments more profitable.
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Companies can also pump more cash directly into the schemesto make a deal with an insurer more likely, or if a full deal istoo hard to reach, they can do a partial deal, where an insurerbuys some of the risk.
Absent a closing of the gap, much of the 2 trillion poundsin defined benefit pension scheme liabilities currently with UKPlc is likely to remain there.
That has not stopped more insurers including ScottishWidows, LV= and Canada Life looking to challenge existingproviders such as Legal & General.
Scottish Widows, part of Lloyds Banking Group, saidlast week it completed its first bulk annuity transaction in thefirst half and planned more deals this year, while Vanessa Owen,head of retirement solutions products at LV=, said it was a"logical area for us to investigate and we are actively pursuingopportunities".
For Paul Traynor, international head of insurance at BNYMellon, the need for data to provide an accurate estimate of howlong pensioners will live could be a barrier to entry, as "theestablished players have decades of data".
While company boards may be more prepared to make cashinjections into their schemes as the year ends and they have abetter idea of cashflows, the prospect of a UK base rate riseover coming months means some companies may prefer to wait andsee if it helps close their deficits.
Jay Shah, head of origination at bulk annuity providerPension Insurance Corp, said that if interest rates were higher,"we would be flooded with people wanting to buy out theirpension schemes".
Consultants KPMG have predicted the bulk annuity marketcould grow to 20 billion pounds a year by 2020, which would morethan compensate for a recent halving in the market forindividuals to buy annuities.
But a study by consultants Aon Hewitt on Monday showed thatjust 27 percent of schemes surveyed had identified a full bulkannuity deal as their long-term objective, with the remainderplanning to keep running the schemes themselves.($1 = 0.6402 pounds) (Editing by Sinead Cruise and David Holmes)
