Bulk Annuity Market Update
The dawn of a new age in the bulk annuity market
09 Aug 2018
According to Hymans Robertson’s latest analysis of the bulk annuity market, 2018 is shaping up to be a record year for volumes. Many insurers are writing almost as much pension scheme bulk annuity volume in the first half of 2018 as in the whole of 2017.
First half of 2017
Second half of 2017
First half of 2018
In addition to the pension scheme buy-ins and buy-outs are the highly material insurer-to-insurer transactions, in particular £12 billion of Prudential’s existing annuity portfolio transferring to Rothesay Life, and Phoenix taking on Standard Life’s multi-billion pound annuity portfolio. This is relevant for pension schemes because these ‘back-book’ transactions effectively use up insurer capacity, as insurers taking on these portfolios will often target the very same illiquid assets that could otherwise be used to provide attractive bulk annuity pricing to a pension scheme.
There is also a large volume of pension scheme buy-ins and buy-outs that are close to transaction, which will buoy this year’s transaction volumes even further. The market is therefore well placed to meet the predicted total volume of £35 billion, which would be more than a 100% increase compared to the market average over the past four years.
Kieran Mistry, Risk Transfer Specialist comments on what this means for the rest of 2018 and 2019:
“Over the last few years, calendar year-ends have brought opportunities for pension schemes that are in the market for buy-ins and buy-outs, as insurers were keen to transact to meet targets for business volumes at their financial year ends. However, given the already highly attractive pricing we’re currently seeing and the volumes already written by insurers and in the pipeline, we expect the end of 2018 may not bring the peak in competitive pricing the market has come to expect.
“Schemes beginning to approach the buy-in and buy-out market at this time of year would have typically looked to transact ahead of the year end, in the hope of benefitting from those year-end opportunities. This year, the busyness of the market means many of these schemes will instead target a transaction at the start of next year. This means that the pipeline for the start of 2019 will fill up quickly, and we are likely to see a busy start to 2019, echoing the start of 2018.”
Kieran Mistry adds on what this means for schemes:
“The recent spike in demand from pension schemes for buy-ins and buy-outs is not surprising and one that we have been predicting it for some time. This should not be seen as a temporary blip. In fact, it seems highly likely that demand will continue to increase over the medium to long term. We are on the cusp of a shift in the supply-demand dynamics of the market. Until now, the supply of bulk annuities outpaced demand from pension schemes, and schemes benefited from an abundance of competition and attractive pricing. While the attractive pricing is still there, we are now in a world where insurers are no longer clamouring for every transaction and are able to be more selective. Trustees and sponsors will have to be smarter and more patient to get the best outcome for their schemes, and understanding insurance and reinsurance company dynamics and priorities is more important than ever.”