2018: A record breaking year for the bulk annuity market
06 Jul 2018 - Estimated reading time: 3 minutes
Following a strong end to 2017 for the bulk annuity market, the start of 2018 has seen an unprecedented number of schemes looking to secure buy-ins and buy-outs. The total value of buy-ins and buy-outs in the first six months of 2018 has been more than the value for the whole year in each year up until 2013. This is largely due to a combination of:
- very attractive pricing on offer by insurers since the end of 2017, resulting in schemes exploring the market to take advantage of this pricing; and
- schemes de-risking their assets following strong recent equity performance and looking to use these lower risk assets to secure buy-ins.
As a result, 2018 is shaping up to be a remarkable year. We expect total pension scheme buy-in and buy-out volumes to reach around £18 billion in 2018. This would be an all-time record, far surpassing the previous high of £13.2 billion in 2014 (which was an exceptional year as a result of the record-breaking ICI and TRW transactions).
With market activity at a record high, many schemes are benefiting from exceptional pricing. The 6 most recent buy-ins we have led during 2018 have allowed schemes to insure pensioner liabilities at or below their technical provisions reserve.
Earlier this year, we also saw two highly material insurer-to-insurer transactions, with £12 billion of Prudential’s existing annuity portfolio transferring to Rothesay Life, and Phoenix taking on Standard Life’s £multibillion annuity portfolio. Allowing for back book transactions such as these, we expect the total volume of bulk annuity transaction in 2018 to be around £35 billion. These transactions should be considered alongside pension scheme buy-ins and buy-outs as they effectively use up insurer capacity. In particular, back book transactions use up operational resource and capital available to insurers that is required to back new business.
Putting 2018 into context
The table below shows the average volume of business for the 8 active bulk annuity providers over the past four years, allowing for back book acquisitions. We also show the range of annual volumes for each insurer over the same period.
|Insurer||2014-17 average volume||2014-17 annual volume range|
|Aviva||£1.1bn||£0.6 - £2.0bn|
|Canada Life||£0.2bn||£0.03 - £0.5bn|
|Just1||£1.0bn||£0.7 - £1.2bn|
|Legal & General||£4.4bn||£2.0 - £6.3bn|
|Phoenix||£0.6bn||£0.0 - £1.2bn|
|PIC||£3.1bn||£2.5 - £3.9bn|
|Rothesay Life||£3.7bn||£0.9 - £6.0bn|
|Scottish Widows||£0.8bn||£0.4 - £1.5bn|
1Figures for Just include combined figures for Just Retirement and Partnership prior to the subsequent merger.
The predicted total volume of bulk annuity transactions of £35 billion would require more than a 100% increase compared to the average market volumes over the past four years, and would be significantly higher than the total of the highest annual volumes written by each insurer over the past four years (£22.6 billion).
To sum up, the end of the 2018 is looking to be very interesting. In the current busy market, insurers have more choice than ever regarding which schemes they wish to engage with and use their best pricing on. This will make it even more important to:
- have a careful and considered approach;
- be flexible on when you transact to navigate fluctuations in pricing and competition; and
- have an advisor who can help guide you through this ever-evolving market.
Our strong risk transfer experience and deep knowledge of insurers and the market means that we can provide pension schemes with precisely the tools they need in order to best engage the insurance market and create better, more certain outcomes for their members.