The buy-in/buy-out market is busy, so what?
Risk Transfer seminar highlights
27 Sep 2019
Held within a week of record-breaking deals, our 2019 risk transfer seminar couldn’t have been timelier! The hype around the current busy market was reflected in the room, with not a spare seat in the house. So we all know the market is busy, but last week we asked “so what?”
The busy market backdrop
Over the last 12 years, buy-in and buy-out volumes have increased dramatically, especially in 2018 and 2019 - with over £40bn worth of transactions expected to be completed this year. Demand now outweighs supply, resulting in some insurers having to turn away pension schemes looking to transact.
Throughout our event, we looked at each stage of the buy-in process and discussed ideas to help you get on the front foot in the busy market. Here, I summarise the key messages and takeaways from each session.
Planning your buy-in
Karein Davie, a leading Independent Trustee from PTL, took to the stage to discuss the initial planning stage of the process. With Trustees becoming busier now than ever before due to the changing pensions landscape and increased regulations, it’s easy to lose focus on the bigger picture. Being close to buy-in/buy-out can cause an array of emotions and uncertainty about where to begin so Karein provided 4 top tips to help you get prepared:
- Get the right support in place from the very beginning.
- Work closely with your sponsor and have an open, honest dialogue.
- Plan early, and well, so you can be prepared for any changes or challenges that may develop.
- Spend money now to save in the future.
Louise Chalkley, Administration Manager at Hymans Robertson, then provided insight on data preparation. Good quality data is key in all transactions completed within the lifecycle of a member and the pension scheme. It’s important to understand that data requirements for business as usual vary greatly from the requirements to be transaction ready in a risk transfer exercise.
The quality and completeness of this data can depend on many things. It's important for trustees to work closely with the pension scheme administrators to be able to identify and prioritise any data cleanse or reconciliation requirements. Regular and open communication between all parties involved, with specific timeframes and requirements, will also ensure a successful transaction.
Insurer triage process
Sammy Cooper-Smith from Rothesay Life kicked off the second half by looking at what makes some schemes more attractive to insurers than others. With 2019 being a record year for most insurers, some are being much more selective. There are many aspects that influence an insurers’ decision on which schemes to favour, but here's a few that really matter:
- Correct and up-to-date data - spouse, GMP and experience data are all important factors
- Joint working party – the deal is more likely to go ahead if everyone is on board and working together to achieve the trustee and company objectives
- Challenging but realistic price target
- Clear investment transaction plan
Uzma Nazir from PIC followed with when and how insurers offer their best buy-in pricing. Despite the high demand, pricing in this market is still attractive. Insurers having to compare and choose between two deals is much more common now in the busy market, but how do insurers decide which scheme gets offered the best price?
Uzma shared some points that influence their decision-making process:
- How likely is the transaction to go ahead? The more certain, the better.
- Is the target price realistic? What is the affordability of the transaction?
- What assets can they offer? And what assets can the insurer use?
- What’s the timeframe of the process? How much preparatory work has the scheme done before coming to market?
- What governance is required? Will the pension scheme be able to efficiently respond to any changes?
- Is there a credible advisory team in place?
Negotiation and implementation
Our very own Michael Abramson presented the final session on negotiation and implementation. To be able to negotiate with insurers effectively and efficiently, you must:
- Know your own position and understand what good looks like to you
- Engage with insurers and create competitive tension
- Have a well-defined process in place, but be flexible and adaptable
- Understand the insurer well
Michael’s final point on successful implementation stressed that it’s critical you involve your administrator early on and you must be aware of all the stakeholders involved in the process.
A final word
We hope this provides an insight into the thought-provoking discussion we had on the day. Being well-prepared for your risk transfer transaction in this busy market will help you stand out from the crowd and get the right attention from insurers – a theme which came across loud and clear throughout the day.
If you would like to know more about anything covered on the day, please do get in touch.