Comprehensive analysis of the buy-in market - July 2017
Buy-in monitoring service
27 Jul 2017 - Estimated reading time: 10 minutes
In the July 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 continues to be cheaper than gilts
Buy-in pricing has improved over the second quarter of 2017 and schemes continue to be able to complete a buy-in for less than the value of gilts that would be required to back the same pensioner liabilities. This effectively means that schemes are able to sell gilts for a buy-in to benefit from longevity protection and an increase in their expected asset return.
Buy-in business expected to accelerate in the second half of 2017 following slower start to the year and a new entrant
Bulk annuity business completed in the first half of 2017 was in the region of £4bn-£5bn. Activity has increased since the first quarter but this remains lower than most insurers had budgeted for. This means we expect insurers to offer some attractive pricing towards the end of 2017, to help them reach their target deal volumes for the year.
In addition, Phoenix Life have now entered the buy-in market. The increased competition over the second half of the year could create some attractive pricing opportunities for those schemes that have already identified buy-in as part of their strategy and are well positioned to transact. There are now eight insurers in the buy-in market with each looking to grow their business, although at different rates. This is good news for pension schemes as it will help maintain a competitive market and also provide extra capacity to meet what we expect will be a steep rise in demand from pension schemes for buy-in and buy-out over the next 5 years.
Competition and appetite
Each insurer has a particular focus in terms of size of transaction, this is shown in the table below:
Although different insurers target different transaction sizes, there is competitive tension across the whole market. Insurers often consider individual transactions on merit, even those outside of their “target market”.
Trustees will experience increased competition and ultimately better pricing by making their transaction attractive to as many insurers as possible. To help achieve this, trustees should set their objectives and then design a structure that is most appealing to the insurance market whilst meeting their aims.