Comprehensive analysis of the buy-in market - November 2018
Buy-in monitoring service
30 Nov 2018 - Estimated reading time: 5 minutes
In this edition of our buy-in monitoring service, we share our usual pricing analysis as well as providing an insight into the latest buy-in activity and how we anticipate this will develop as the year progresses. This quarter's headlines include:
Pensioner buy-in pricing dips from mid-year peak
Buy-in pricing remains attractive with prices in many cases 3-5% lower than the equivalent gilt liabilities. Average pricing has deteriorated slightly compared to pricing seen in the middle of the year, primarily due to the record levels of business already written by insurers during the first half of the year. High business volumes in the first half of the year has reduced the appetite of some insurers for the remainder of 2018 and, not surprisingly, insurers are being more selective over which transactions they compete for. However, schemes prepared to be patient and understanding the changing market dynamics will continue to be able to secure attractive buy-in pricing.
Well prepared and informed schemes benefit as insurers manage large volumes
The surge in demand from pension schemes provides both opportunities and new challenges for insurers. Insurers are having to carefully manage their own resources and will not be able to provide their best pricing on every transaction. Well prepared schemes with a clear strategy, straightforward approach and realistic target price are likely to be favoured by insurers. For some years insurers have turned away or minimised effort in responding to speculative quotation requests. What we are now seeing is the start of the next step change in the supply-demand dynamics. A phase where insurers’ are able to deliver the attractive pricing required by schemes, but are limited in volume by the investment opportunities they can source. Understanding insurers’ investment processes and what they are looking for in a transaction will allow trustees to get to the top of insurer lists and achieve better outcomes from their transactions.
Completing the journey to buy-out
This surge in demand from pension schemes has been driven primarily by improved funding levels and attractive insurer pricing. The slowing down of longevity improvements together with higher numbers of members transferring their benefits out of DB schemes has led to an acceleration in schemes’ journey plans, with many finding that buy-out is closer than they may have anticipated. While buy-out is the long term objective for many trustees and sponsors, winding up a scheme and completing the journey is new territory for many trustees.