Bulk annuities market ‘primed for a record year’ – Aon

After a “vibrant” 2017 for the bulk annuity market, expectations for 2018 are high with transactions potentially reaching £30bn, according to Aon.

In its Risk Settlement Market 2018, Aon noted that 2017 saw £12.3bn of bulk annuity transactions, combined with longevity swaps the figure rises to £18bn. Insurers had already updated their business models to adjust to the requirements under Solvency II and were ready to engage in risk settlement transactions with company pension schemes, Aon said.

However, 2018 is “primed for a record year” with a number of full scheme buyouts entering the market as well as a continued flow of pensioner buy-in deals. The report noted that the theme of insurance consolidation continues with a number of significant back-book transactions ongoing.

Commenting, Aon senior partner and head of risk settlement Martin Bird said: “I am confident that 2018 will also be a good year for pension de-risking, with improved pension scheme funding levels and better insurer pricing set to make settlement more affordable than ever.

“The bulk annuity market is set for a record year with transactions potentially reaching £30bn and we expect a number of full scheme buyouts to enter the market as well as there being a continued flow of pensioner buy-in deals. In addition, longevity reinsurance pricing has returned to more attractive levels following the period of dislocation during 2016 and early 2017 and we are already seeing schemes re-entering the market to purchase protection against this risk.”

However, Aon warned that in order to avoid a shortage of available resource, insurers are increasingly selective before agreeing to quote - and are seeking demonstrable commitment to transact. The report said education and preparation are crucial if schemes are to secure the most competitive pricing for their liabilities, particularly in the busy market expected for 2018.

In addition, smaller schemes are increasingly gaining opportunities to obtain competitive quotes from insurers - but to achieve maximum engagement from them, smaller schemes need to provide evidence that they are well prepared to complete a transaction, according to Aon.

Aon principal consultant Tiziana Perrella explained that as smaller schemes have higher levels of concentration risk, medical underwriting is particularly relevant to them. Currently, it is still possible to take advantage of potential savings from underwriting by following a model where underwriting is carried out after a transaction completes, and a proportion of the savings is rebated to the scheme, she noted.

“Another option schemes might consider is whether to go for a buyout or not. Buyout pricing may look particularly attractive for smaller schemes once the ongoing costs of keeping the scheme running are taken into account, as these can be proportionately much greater than for bigger schemes.”

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