Risk Transfer Report
Helping Defined Benefit schemes to transfer risk
29 Feb 2016 - Estimated reading time: 6 minutes
Key themes for risk transfers in 2016
Here are a few headline thoughts on the pension scheme risk transfer market during 2016, which have been formed from our unique position of advising pension schemes, insurers and reinsurers on all types of risk transfer transactions:
- There are currently eight insurers competing to provide buy-ins to pension schemes, compared to only five at the start of 2013. This 80% increase over three years is good news for UK pension schemes who are increasingly looking to transfer risk to insurance companies.
- Indeed, buy-in pricing is more competitive than ever as a result of Canada Life and Scottish Widows entering the buy-in market, completing their first transactions in 2015. There are particular early mover advantages in transacting with these particular insurers and, in addition, the existing insurers in the market have strong appetites to complete buy-ins that fall within their preferred size range.
Buy-in pricing has been further helped by:
- the significant rise in returns on corporate bonds (where the insurers invest a material proportion of buy-in premiums) compared to Government bonds – up well over 0.5% p.a. this year; and
- increased use by the insurance companies of other asset classes with higher returns, such as equity release mortgages.
These positive factors have more than offset “Solvency II” (the new, more stringent, solvency requirements for UK insurance companies).
Separately, new longevity swap structures offered by insurers, such as Legal & General, means that it is efficient and cost effective to directly access competitive reinsurance pricing to transfer life expectancy risk.
Our work with all parties to these transactions mean that Hymans Robertson has now advised on 33% of all risk transfer deals, by value.