PLSA AC 2020: Bulk annuity volumes to hit £25bn in 2020; small-medium deals dominate

Bulk annuity market volumes in 2020 will be around £25bn, making this the second-highest year after 2019, Pension Insurance Corporation (PIC) head of business development, Mitul Magudia, has predicted.

Speaking at the PLSA Annual Conference 2020, Magudia described this as “a significant achievement given the volatility and uncertainty to both corporate sponsors and trustees of pension schemes, and insurers themselves”.

Magudia described this as being characterised by a larger number of mid-sized transactions, around £100m-£500m in size, compared to the very large deals of 2019. There has been around twice as many of these ‘smaller’ deals in the first half of 2020 versus the first half of 2019, he explained.

Another theme for 2020 is the onset of repeat transactions, Magudia noted.

“They have made up approximately £10bn of business in 2019 and 2020, which is really quite astonishing when you consider between 2014-2017 that was broadly the entire volume of the market,” he said.

“We certainly think that will be a trend that continues and given the past three years of £25bn-£40bn [annual bulk annuity volumes], we expect a lot of those new customers to come back for follow-on transactions over the next few years.”

Magudia gave the examples of TI Group recently conducting their sixth buy-in deal with their fourth insurer, Cadbury’s completing their second buy-in 10 years after their first, National Grid conducting two transactions within a month of each other last year and ICI completing their 17th transaction last year.

“Historically schemes with more deferred members than pensioner members had found it hard to gain traction in the market but this no longer seems to be the case,” Magudia added, highlighting Littlewoods, 3i and Hitachi as achieving this.

“This year is also seeing schemes coming back to insure their remaining deferred members. So those that undertook a pensioner buy-ins years ago and now moving to full buy-in and ultimately buyout,” he said.

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