Comprehensive analysis of the buy-in market
Buy-in monitoring service - May 2020
07 May 2020
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:
Current market volatility creates pricing opportunities for well-prepared schemes
In amongst all of the uncertainty created due to COVID-19, widening credit spreads have created pockets of attractive buy-in pricing. The situation will vary between insurers, depending on their views on the risks presented by different investment opportunities and market volatility. This means some of these opportunities may be fairly short term. For schemes to take advantage of dips in pricing they will need to have spent the time preparing, have engaged with insurers and be in a position to make decisions quickly. See our “Buy-in insights” section for more details on the implications of COVID-19 on buy-in/out pricing and insurer capacity.
Too soon to estimate the longevity impact of COVID-19 on pension schemes
There is considerable uncertainty over the extent to which COVID-19 will impact (both directly and indirectly) mortality rates and there is the potential for the impact to vary significantly between pension scheme populations. This creates a risk that pension schemes could “over-pay” for insurance at this point in time, compared to holding off until the passing of the initial wave of COVID-19. However, the price reductions created by widening credit spreads (discussed above) is offsetting and in may cases outweighing the regret risk of transacting in the midst of a mortality spike. This balance requires careful assessment.
See the bigger picture
Download our fourth annual risk transfer report, where we track the recent key changes in the market, with a particular focus on bulk annuities, and look at what these could mean for your defined benefit (DB) pensions scheme.