Comprehensive analysis of the buy-in market
Buy-in monitoring service October 2017
01 Nov 2017 - Estimated reading time: 10 Minutes
In the October 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.
Pensioner buy-in pricing improving
Buy-in pricing has improved over the third quarter of 2017, with prices in many cases being c5% lower than the value of the equivalent gilt liabilities. See our “Buy-in pricing” section 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 6-12 months.
In addition, insurers are getting better and better at sourcing bespoke, higher yielding assets. In many cases these are long term illiquid assets which are leading to particularly attractive pricing at younger pensioner ages.
Well prepared schemes benefit as insurers manage large year-end volumes
A surge in schemes requesting quotations in the second half of 2017 has kept insurers very busy and much of this business is expected to spill over into early 2018. 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. See our “Buy-in insights” section for more detail on insurer busyness and being well prepared.
Wide range of buy-in pricing between insurers
One of the implications of Solvency II has been that insurers’ pricing is much more sensitive to the specific assets they will use in their reserves to back a particular transaction. This means prices on specific transactions can shift materially as different assets become available. It is important to have accurate benefit and membership data loaded onto the insurers’ systems, as this gives the clearest possible picture of the best price available at any time and provides the opportunity to capture pricing as assets become available.