The bulk annuity market is expected to “remain at historically high levels” in 2019, with up to £30bn worth of deals, according to Willis Towers Watson (WTW).
This reflects the significant amount of de-risking most clients have undertaken, with longevity risk now being the dominant remaining risk.
Its research forecast that longevity swaps would double to over £10bn in 2019 and that the value of mega deals would increase further.
Commenting on the research, WTW head of transactions, Ian Aley, said: “2018 was a record breaking year in the bulk annuity market, including four ‘mega’ transactions of over £1bn, and we expect to see this buoyant level of activity to continue into 2019.”
However, there is “potential” for upwards pressure on price as insurers take advantage of shifting supply and demand.
Despite this, and that capacity constraints have begun to bite for the first time, WTW forecast that the bulk annuity marker will remain high.
This is due to buyouts being more affordable than many companies might expect, “thanks to a combination of falling longevity, strong equity markets, and the potential for cost savings in future governance and other ongoing costs”.
Aley added: “Against this buoyant backdrop, pension schemes will need to be particularly mindful of how best to get traction in such a busy market.
“For smaller schemes this is likely to revolve around streamlining processes, with good preparation, governance and pre-agreed legal terms, while larger schemes should consider partnering with insurers to find optimal assets to match their liabilities.”
WTW also noted that it does not expect Brexit will have a significant impact on the bulk annuities market, although it could lead to further improvements in the relative pricing of buy-ins if the continuing market volatility created a widening of credit spreads.