Comprehensive analysis of the buy-in market February 2018
Buy-in monitoring service
28 Feb 2018 - Estimated reading time: 3 mins
In this edition of the 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.
Pension buy-in pricing improving
Buy-in pricing improved over the final quarter of 2017, with prices in many cases being over 5% lower than the value of the equivalent gilt liabilities. See our section on “Buy-in pricing” for more details.
Insurer competition and asset opportunities driving attractive pricing
With the entrance of Phoenix Life, there are now eight insurers in the buy-in market with each looking to grow their business. This highly competitive market is good news for pension schemes as it will help maintain attractive pricing and meet increasing demand from schemes. We anticipate another new entrant over the next 12 months.
In addition, insurers are improving their capabilities to source bespoke, higher yielding assets. In many cases these are long term illiquid assets which are leading to particularly attractive pricing at younger pensioner ages.
2018 set to be record breaking year for buy-in and buy-out transactions
A combination of high demand from pension schemes to de-risk and a healthy appetite from insurers to complete transactions is predicted to make 2018 a bumper year for bulk annuity deals.We predict total bulk annuity transactions will exceed £15bn for the first time ever.
2017 was a busy year, with lots of small and mid-sized transactions and many other schemes approaching the buy-in market with transactions due to complete in early 2018. As well as quantity of deals we anticipate a number of larger transactions will also take place in 2018, including some back book activity as Prudential look to sell their significant historic annuity book.
Well prepared schemes benefit as insurers manage large volumes
The surge in demand from pension schemes provides both opportunities and new challenges for insurers which trustees should consider. Insurers need to manage their own resources and well prepared schemes with a clear strategy, straightforward approach and realistic target price in mind will be favoured by insurers.
Approaching the market early is key. This gives schemes time to ride out waves of insurer busyness and if necessary engage in a collaborative price monitoring process until their objectives are met.