By Simon Challis

LONDON (Reuters) - The pensions buyout insurance market could hit 10 billion pounds this year and may see the first 1 billion pound deal, said Legal & General, one of the market's leaders.

The rapid pace of dealmaking in the market in the last quarter of 2007 and the first quarter of this year shows no real sign of slowing, despite the volatile investment markets, Simon Gadd, L&G's managing director for annuities business, told Reuters in an interview on Monday.

"In Q1 we saw 2.5 billion to 3 billion pounds of deals closed in the market. Q2 will see about the same," Gadd said.

While fewer transactions tend to be signed in the third quarter, the fourth quarter will see a pick-up driven by the impetus to close deals before the end of many firms' financial year, Gadd predicted.

"All the indications are that there could be 10 billion pounds worth of deals done this year. From a market that saw about a billion pounds' worth of deals done a year, that is a very material increase in a short space of time."

Many firms are looking now to transfer or "buy out" their final-salary pension liabilities with insurers, offloading an increasing financial headache due to rising life expectancy of workers, turbulent investment markets and tougher regulations.

A vibrant market, including established insurers like L&G (LGEN.L: Quote, Profile, Research), Aviva (AV.L: Quote, Profile, Research) and Aegon (AEGN.AS: Quote, Profile, Research), specialist start-ups such as Paternoster and Pension Corporation and investment banks like Citigroup (C.N: Quote, Profile, Research) have quoted on pension schemes with a combined value of tens of billions of pounds.

L&G has quotes outstanding on schemes worth a total of 20 billion pounds, said Gadd, and he predicted that the first 1 billion pound deal is just around the corner.