Investment opportunities puts pressure on bulk annuity market

The pressure to find high-yield investment opportunities will be one of the main constraints on the 2019 buyout market, JLT Employee Benefits has said.

In its Buyout Market Watch Report Q1 2019, JLT said that it is confident that 2019 will transact similar or higher volume of business as the previous year, but that insurers must continue to find higher yielding assets in order to maintain current pricing levels.

According to the report, other pressures also facing the buyout market include human resource and the clearing of back-books, which could potentially take up to £40bn capacity in the market.

JLT Employee Benefits principal, Ruth Ward, commented: “We’ve already seen a significant number of transactions in what is typically the quietest quarter of the year. Arguably, some of these are a hangover from the end of last year – as most insurers hit a saturation point in Q4 2018 where they wanted to defer writing further new business into their next financial reporting year.

“However, even as early as November 2018, insurers were reporting large pipelines of new quotation requests, with many schemes joining the queue for January 2019.”

The sentiment echoes a warning issued by Legal and General in January, who said that the short supply of illiquid assets in the UK could lead to a capacity crux in the bulk annuity market.

Demand for direct investments into infrastructure and real assets has risen hugely over the past couple of years, as pension schemes compete for the illiquid assets which insurers were already investing in.

Despite this, Ward said that it is confident there’s sufficient capital and appetite, and hinted to a number solutions to help ease the flow in the market.

“It is clear that a greater level of automation, particularly at the early quotation stages, would help address some of the human resource constraints; cutting insurer quotation timescales and allowing advisers and insurers to focus more quickly on attractive deals," she added.

“JLT’s Buyout Comparison Service has already taken great strides by providing data for all schemes in a single-file of unchanging and easily readable format, and without a separate benefit specification for insurers to interpret. The results speak for themselves – pensioner (and some deferred) pricing every month in as little as five days.”

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