• 7 multi-billion pound ‘mega-transactions’ in 2019 amounted to over £24billion, more than total volumes for the whole of 2018 across 162 transactions
• Hymans Robertson annual report reveals a record volume of deferred members insured during 2019 due to improved pricing and funding levels
• Insurers are now much more selective about which pension schemes they provide buy-in quotations for

A massive increase in so-called ‘mega-transactions’ accounted for around two-thirds of the record-breaking bulk-annuity transfer volumes for 2019, according to analysis, published today, by Hymans Robertson in its latest annual Risk Transfer Report. The leading pensions and financial services consultancy found that just seven of these multi-billion transactions amounted to over £24 billion in 2019, which is more than total buy-in and buy-out volumes during the whole of 2018 across 162 transactions.

Furthermore, a record amount of deferred member liabilities (around £10bn) were insured during 2019.  This is a result of improved pricing for insuring deferred members as insurers get even better at sourcing long-dated assets and are increasingly able to share the longevity risk with reinsurers.  Pension scheme funding levels have also improved with solid asset performance and recent falls in life expectancy. 

However, concerns about insurer capacity to keep pace with pension scheme demand look set to continue, with insurers now much more selective about which pension schemes they provide buy-in quotations for. The report tells of one leading insurance company which declined to quote on around 50 buy-in requests, reflecting a total value of over £10 billion of business.  Competitive pricing remains but the increase in demand makes it all the more important for trustees to prepare thoroughly before approaching insurers for quotations, to ensure they can clearly demonstrate why their pension scheme should be a high priority case.

James Mullins, Partner and head of risk transfer at Hymans Robertson explains the impact of these ‘mega-transactions’ on the industry:

“In 2019 there were 10 transactions over £1bn and five transactions over £3bn, including the largest ever buy-in and buy-out.  These mega-transactions inevitably receive top priority from several of the insurers, which means that smaller pension scheme transactions need to work even harder to stand out from the crowd.

James Mullins continues to explain the steps trustees can take to stand out from the crowd:

“Despite the increased competition, there are a number of ways to secure excellent insurer engagement and pricing.  These include solid preparation and analysis before starting the engagement with insurers, and being able to demonstrate to insurers that the scheme has strong governance and stakeholder support for the transaction. It is also ever more important deciding which insurers to approach and in what manner in order to maximise their engagement and optimise outcomes for the pension scheme and its members.

On the reduction in the cost of insuring deferred members, James Mullins commented:

“Not all trustees and sponsoring employers are aware that the cost of insuring deferred member liabilities has materially reduced in recent years.  Pension schemes need to make sure they have access to a well-informed and realistic view of the cost of buying-out, to avoid missing out on opportunities to insure risk much earlier than they may have believed was possible.”