Bulk annuity market transactions reach £25bn; 2018 set for a record year

The volume of bulk annuity market transactions is on track for a record year, with disclosed business in 2018 reaching £25bn so far.

According to Aon’s latest Risk Settlement Bulletin, record levels have already been achieved in the first half of 2018, and have since accelerated further over the summer. Of eight bulk annuity providers, Phoenix Life has completed its first external bulk annuity deal this year and six of the other providers have completed their largest ever transaction this year.

Aon said this reflects excess supply carried over from 2017, and advance planning for large transactions that then progressed over 2018, with more assets and capital lined up by insurers to take them on than in previous years. Activity has peaked over the summer, with a particularly large volume of business being placed or entering exclusivity between June and September.

The £25bn of disclosed business so far includes the £12bn Prudential bulk annuity back-book won by Rothesay Life (the largest transaction to date), the £4.4bn pensioner buy-in for British Airways with Legal & General (the largest deal with a pension scheme) and a series of further substantial transactions, with more to be disclosed subsequently.

Aon said that this year the bulk annuity market has been able to absorb larger transaction sizes than before without a diminution in the yield our clients have captured.

“The extra capacity generated is a material step forward in providing a market that can cope with the increasing maturity of defined benefit pension schemes in the coming years. In the very short-term, the market's free people and asset capacity will be temporarily constrained while the recent wins are digested.

“The market is then expected to have material capacity for absorbing new deals into 2019, and fundamentals that have driven strong pricing – such as illiquid asset opportunities for insurers and competitive longevity reinsurance – should remain.”

However, the report warned that “preparation will be critical” to compete against the wider interest from schemes that recent pricing has attracted, and the best time to start planning is now.

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