2017 saw defined benefit pension schemes in the UK complete £12.4 billion of bulk annuities (buy-ins and buy-outs) with seven insurance companies as set out in Table 1 below.  The bulk annuity market showed signs of further maturity as the volume of transactions less than £500 million hit £8.6 billion, over 50% higher than any previous year (see Table 2 below).

Further increased demand from pension schemes means that 2018 is highly likely to be the most active year ever for buy-ins and buy-outs. 

James Mullins, Partner and Head of Risk Transfer Solutions at Hymans Robertson commented:

“2017 saw a real maturity coming to the bulk annuity market, as the volume of sub-£500 million transactions far exceeded any previous year. We believe that these levels of demand will be sustained into 2018, along with a return of the larger transactions that have previously dominated market volumes, which together means that we expect 2018 volumes to exceed £17 billion. ”

Insurers active in the buy-in and buy-out market are expected to take on £40bn of annuity liabilities in 2018.

Wednesday's (14th March) announcement that £12 billion of Prudential’s existing annuity portfolio will transfer to Rothesay Life, combined with the recent news that Phoenix is taking on Standard Life’s annuity portfolio means that the total value of annuity liabilities taken on by the eight insurers currently active in the buy-in and buy-out market is expected to be around £40 billion in 2018, before allowing for any further consolidation of insurer annuity business.

James Mullins added:

“These highly material annuity back book transactions are significant for pension schemes looking to complete buy-ins and buy-outs because they effectively use up insurance company capacity.  In particular, to deliver a competitive buy-in or buy-out price, an insurance company needs to source illiquid assets that provide a good match for the pension scheme cashflows.  When an insurer takes on an existing annuity portfolio from another insurer, it is common for a certain amount of transitioning of the underlying assets, which will frequently target the very same illiquid assets that could otherwise be used to provide attractive bulk annuity pricing to a pension scheme. 

"This means that, in 2018 more than ever, pension schemes need to carefully plan how they approach the insurance companies for buy-in and buy-out quotations and demonstrate why they should be a high priority case. Hymans Robertson’s strong risk transfer experience and deep knowledge of insurance companies means that we can provide pension schemes with precisely the tools they need in order to best engage the insurance market.”

Table 1 – 2017 bulk annuity transactions by insurer

* Estimated value

Table 2 – bulk annuity transactions 2013 to 2017 by volume