PRT market remains strong despite Covid-19 uncertainties - Mercer

The UK pension risk transfer (PRT) market has seen "continued strong activity" despite Covid-driven market uncertainty, Mercer has stated, forecasting a total of £20bn to £25bn in bulk annuity transactions this year.

The firm emphasised that transaction flow had remained “strong” despite the ongoing pandemic, with over £12bn of bulk annuities already written in H1 2020.

It also argued that Q2 had seen a “window of opportunity” for those schemes who had prepared to take advantage of favourable market conditions.

Mercer UK head of bulk pensions insurance, David Ellis, explained: "Despite the overall market uncertainty bought on by Covid-19, transaction flow is remaining strong.

"Whilst some transactions requiring additional sponsor contributions have been understandably paused, actually, the economic market volatility has created some fabulous pricing opportunities for other schemes, particularly in March and April."

He clarified that whilst those "very favourable market conditions", have now largely fallen back in line with pricing from the start of the year, there are still "many schemes obtaining attractive quotations".

Mercer highlighted that, despite market uncertainty, it had helped clients complete 20 transactions over H1 2020, with many of these, such as the recent £650m buy-in for the 3i pension scheme, completed during lockdown.

Ellis added: "It remains clear that as pension scheme members age, and so become easier to insure and schemes themselves over time become increasingly legacy obligations for many companies, demand for bulk annuities increases as a result."

Ellis also highlighted that longevity swaps are also continuing to transact for both large and smaller schemes, with around £12bn of longevity swap transactions in the UK to date, and a total £15bn to £20bn of longevity swap transactions forecast for the year.

He added: "This may seem surprising in the current climate, but if anything, the outlook for longer-term life expectancy is now more uncertain then ever before, and hedging that risk remains an attractive option for many schemes with a longer term journey in mind.

"Overall the PRT market is remaining strong despite the uncertainties this year, and is providing additional benefit security for thousands of UK pension scheme members, and valuable reductions in pension risk for trustees and sponsors alike."

The firm argued that 2020 has also seen schemes taking up new innovations, such as capital backed structures, noting that The Pension Regulator’s interim guidance on consolidators has also led to increased client interest in that approach.

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