Pricing competition likely amid low buyout and buy-in volumes

There is likely to be strong buy-in and buyout pricing competition in 2021 due to low volumes since the start of the year, according to Hymans Robertson.

The firm recommended that schemes considering buy-in move quickly to take advantage of this, noting that just £2bn of buy-ins and buyouts had been publicly announced so far this year.

This is significantly below the £12.6bn and £17.6bn worth of the transactions completed in the first halves of 2020 and 2019 respectively, though there are still six weeks left until the midpoint of 2021.

Hymans added that insurers’ targets for the year are based on much higher transaction volumes, which it said created an excellent landscape for pension schemes looking to complete transactions before the end of the year.

Hymans Robertson head of risk transfer, James Mullins, commented: “The buy-in/out market has grown considerably over the last few years and is widely expected to continue to grow. Insurers’ business projections and planning reflects this trend and they will be very keen to hit their 2021 targets. The quieter start to the year means that there will be strong price competition.

“A good illustration of this is that, for the first time in years, we have seen all eight insurers eager to quote and compete against each other for the same mid-sized buy-in transactions. This has led to highly competitive pricing and great outcome for the pension schemes.”

He explained that he perceived the slowdown in transactions as being “just a hangover from a very busy spell of activity” rather than a sign of reduced appetite or a result of lockdown.

Mullins continued: “Following the recent rise in long-term interest rates and positive performance from growth assets, we are already seeing more pension schemes now approaching the insurers for quotations and so I expect that the second half of 2021 will be a busy period.

“However, the quiet start to the year, means that I expect buy-in pricing opportunities will remain for many pension schemes during 2021. If a pension scheme has already planned a buy-in over the next year, then there is likely to be value in accelerating the process to aim to capture this opportunity.”

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