2018 is on course to be a record year for buy-in, buyout, and longevity swap transactions by defined benefit pension funds, with more than £10 billion of transactions having already been completed at the end of June, according to a report by re/insurance broker Willis Towers Watson (WTW).
The total value of the transactions includes £8.1 billion in the form of bulk annuities and £2.3 billion in longevity swaps, and WTW expects bulk annuity deals alone to exceed £20 billion by the end of the year, easily surpassing the previous record of £13.2 billion in 2014.
WTW found that, at the end of June, four bulk annuity deals had already been concluded that exceeded the biggest transaction of 2017.
These included PIC’s £1.3 billion buy-in deal with Siemens and £850 million buyout of the PA Pension Scheme, as well as Aviva’s £925 million buy-in with Marks and Spencer (M&S) Pension Scheme, and Sottish Widow’s £880 million buy-in with Littlewoods Pension Scheme.
“As we anticipated at the start of the year, highly attractive buy-in pricing across the market has meant a significant increase in bulk annuity transactions so far in 2018, with more to come,” said Shelly Beard, Senior Director in Willis Towers Watson’s Transaction team.
“We currently have 15 live bulk annuity deals in the pipeline, along with 6 live longevity swaps, so I expect this high level of activity to continue through the second half of the year.”
However, Beard questioned how long this level of activity can be sustained, and suggested that the kind of ‘end of year sale’ seen in previous years is unlikely to materialise in 2018 as insurers will have already met their annual targets.
“Schemes considering approaching the market now should be aware that they may need to delay transacting until early 2019 to ensure optimal pricing,” she stated.
“In the longer term, there are also question marks over whether demand for bulk annuity deals will at some point outstrip the supply of suitable illiquid assets and longevity reinsurance, two key drivers of the recent attractive pricing.”
WTW has led eight bulk annuities and one longevity swap that have transacted so far this year, and currently has 15 live bulk annuity processes and six live longevity swaps.
Prudential also recently announced two huge pension risk transfer deals that were not included in WTW’s report, taking over £923 million in pension obligations from U.S defence contractor Raytheon and reinsuring £1 billion in pension liabilities from Aviva Life and Pensions.
