Comprehensive analysis of the buy-in market
Buy-in monitoring service - May 2019
20 May 2019
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:
Early signs of pensioner buy-in pricing being impacted by business volumes
Following a record breaking 2018, the volume of buy-in and buy-out transactions completed over the first quarter of 2019 has remained high. Over this period, insurers have continued to deliver the level of pricing required by schemes. However, the signs of pricing starting to harden in some areas are appearing.
Over the past few years insurers have improved their ability to source bespoke, higher yielding assets and have increased their asset allocation to these in order to help deliver attractive pricing. However, as demand and transaction volumes grow, some insurers are starting to find that their pipeline of new business from pension schemes is bigger than their pipeline of investment opportunities. This puts upward pressure on their pricing and insurers will need to balance this with their desire to deliver pricing that is both competitive and attractive to pension schemes.
Trustees and sponsors will need to consider the drivers behind the quotations they receive
Some insurers that have written a large amount of business during the first quarter of the year will now be looking to build up their asset pipeline, focussing on bedding in the transactions completed over Q1 and thinking about their appetites for the rest of the year. With insurers being able to provide very attractive pricing on some but not all transactions, trustees and sponsors will need to be attuned to market dynamics in order to achieve the best outcome.
Part VII transfers and why pension schemes should care about them
A ‘Part VII transfer’ refers to the transfer of contracts from one legal entity to another as governed by Part VII (Control of Business Transfers) of the Financial Services and Markets Act 2000 (FSMA 2000). For a pension scheme that has an existing buy-in policy with an insurer, it is the only way that an insurer could move the policy to another legal entity. Trustees must therefore consider the insurance regime as a whole and the protections they have in place before entering into a buy-in policy. Further details on this, and what trustees should do if they are notified of a proposed transfer can be found in our “Buy-in insights” section.