The total value of bulk annuity transactions hit a new record in the first half of 2018 with £7.8bn transferred, according to new data from LCP.
This figure beats the 2014 record of £6.9bn, and last year’s figure of £5.1bn. The largest volume in H1 was written by Pension Insurance Corporation (PIC), with £3.3bn. With a market share of 42 per cent, PIC retain their leading position from 2017. Aviva followed with a 20 per cent market share writing £1.5bn in H1 2018. Both insurers’ H1 2018 volumes are only slightly short of their 2017 full-year totals (PIC £3.7bn and Aviva £2.0bn).
In addition, Scottish Widows has significantly increased its volumes in 2018, increasing its market share to 14 per cent (£1.1bn) in H1 2018, putting them in third place overall, up from 5 per cent (£0.6bn) for 2017 full year.
The largest volume insured by a single scheme in H1 2018 was £1.4bn by the M&S Pension Scheme, split across two buy-ins with Aviva and Phoenix Life. It was Phoenix Life’s first open-market transaction, following a pensioner buy-in with their own scheme in 2016. The largest single transaction was the £1.3bn pensioner buy-in by the Siemens Benefit Scheme with PIC.
Furthermore, LCP analysis revealed the longevity risk transfer market also hit a record, reaching £21.8bn. The record-breaking figure includes a £2bn longevity swap by National Grid in May, and a £12bn annuity back-book transfer from Prudential to Rothesay Life in March. The previous record stood at £11.9bn set in the first half of 2014.
LCP partner Charlie Finch predicted a record year for buy-ins and buyouts at the beginning of 2018, on the back of improved funding positions and the best insurer pricing for 10 years. He believes 2018 will see a new record of over £15bn set for buy-ins and buyouts for the first time.
“Buy-ins and buy-outs are now an established risk management tool for large blue chip companies. The pension plans of Heathrow airport, Littlewoods, Marks & Spencer and Siemens have all completed large pensioner buy-ins in 2018; Toshiba and PA Consulting have both insured UK pension plans in full. I would encourage all pension plans to obtain an assessment of their buy-out position, building in the latest improvements, as many are finding they are in a much better position than they realise,” he said.
However, Hymans Robertson risk transfer specialist Kieran Mistry has warned that 2018 may not bring the peak in competitive pricing that market expects towards the close of years.
“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.”