Risk transfer demand is likely to be slowed by pension schemes considering whether upcoming transactions are appropriate amid the coronavirus crisis, according to Hymans Robertson.

A report from the actuarial firm noted that this drop in demand would provide a chance for likely reductions in insurer capacity to avoid being a material issue to the market.

These reductions are expected because of widened credit spreads leading to smaller issuances of corporate bonds, while other previously attractively priced asset classes, such as infrastructure and equity release, could be less readily available than before coronavirus hit.

The report, penned by Hymans Robertson head of risk transfer, James Mullins, stated that buyout and buy-in pricing was largely expected to improve, though it added that this was highly dependent on the investment strategy and duration of scheme liabilities.

Whilst credit assets used by insurers to back liabilities fall in price, the report noted that insurers will need to make a larger allowance for default risk.

The report stated: “Since the onset of Covid-19, pension schemes will have seen high volatility in their assets, driven by widening of credit spreads, material changes to long-term interest rates and equities falling back to levels not seen since 2011. The unfolding development of Covid-19 will have a number of implications on buy-in and buyout pricing.”

Hymans Robertson’s analysis further warned that schemes looking to transfer longevity risk in isolation through a longevity swap should hold fire until the full impacts of Covid-19 on longevity are fully understood.

“Insurers and reinsurers are likely to price prudently given that there is not enough data to sufficiently predict the scale of a short-term mortality spike in pensioner populations, although the impact will be clearer once the first wave of Covid-19 has passed,” said Hymans Robertson.

Following a record year for the risk transfer market in 2019, Hymans Robertson had said before the global pandemic emerged that it expected the market to remain busy through 2020 despite a reduction in multi-billion pound transactions.

There are signs that some measure of momentum has been maintained by the market, with Legal & General’s pension risk transfer business completing eight transactions in March.

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