Comprehensive analysis of the buy-in market
Buy-in monitoring service - September 2019
05 Sep 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:
Record-breaking first half of 2019 sets tone for what’s to come
Following a record-breaking 2018, the volume of buy-in and buy-out transactions completed over the first half of 2019 has remained high. We expect the total volume of transactions for 2019 will exceed £30bn for the first time ever.
Short-term pensioner buy-in pricing likely to be impacted by ranging insurer appetites
Insurers have continued to deliver the level of pricing required by schemes to complete transactions. However, there are signs of pricing starting to harden in some areas in response to this increased demand from schemes.
A strong start to 2019 for some insurers means that they are more selective on which transactions they offer their best pricing. In the short-term, obtaining attractive pricing may be more challenging than a year ago and may require patience or a flexible process to work around different insurers’ resource requirements and changing business focus from time to time. However, schemes that are well placed are still able to find opportunities to complete a buy-in at a level below the equivalent gilt liabilities.
Quickly changing market requires trustees to be well informed and prepared
The buy-in market is changing more now than ever before. Fluctuations in insurer appetites and asset availability, combined with volatile market conditions (driven by Brexit uncertainty) creates both challenges and opportunities. Having clear objectives and adopting a patient but flexible approach whilst staying attuned to market dynamics is the best strategy for
schemes to achieve their objectives.
Life expectancy trends continue to reduce liabilities and highlight need for accurate assessment
Over recent years, life expectancy improvements have followed a broadly downward trend. However, the latest mortality data released by the ONS shows lower deaths than would be expected based on improvements in life expectancy seen over the previous few years.This should lead schemes to consider their view of future longevity of their members which has an impact on how schemes assess the value of a buy-in. To ensure that buy-in pricing is measured against a suitable yard stick, it is crucial that pension schemes carefully consider their demographic assumptions and be aware that these assumptions could be revised in the future. See our “Buy-in insights” section for more details on the link between views in life expectancy improvements and assessment of buy-in pricing.