The uncertainties of Brexit could create further opportunities in the bulk annuities market for pension schemes and reinsurers as a weaker pound makes buy-out more affordable for schemes with overseas sponsors, said Hymans Robertson in a recent report.
The UK’s well-developed and highly competitive bulk annuities market could see more mergers and acquisitions in the near future as UK assets become more affordable to international companies.
“Companies are often keen to minimise the level of pension liabilities and risk they take on as part of an acquisition and may seek to complete a buy-in or buy-out as a way of doing so.
“Schemes that are well prepared with clean data and well-defined governance processes for making decisions, will be best placed to capture these opportunities,” the report said.
This will come as good news to global reinsurers who will be able to purchase bulk annuities in the UK at a lower cost as the pound weakens from the impact of Brexit.
Hymans Robertson previously predicted that demand for bulk annuity buy-ins in the UK could quadruple over the next 15 years as £700 billion worth of defined benefit pension scheme liabilities are expected to be passed to insurers by 2032.
The report said around one-third of current defined benefit (DB) pension risk schemes are expected to reach self-sufficiency over the next 15 years as firms increasingly look to offload pension schemes and secure benefits with re/insurers.
The weakening pound is likely to further catapult the widespread sale of pension schemes as firms with the right structure and management in place for efficient transfer of pension risk take hold of the opportunities for insurance and reinsurance capacity at more competitive pricing.
This would open up large-scale demand for re/insurance to support much of the ensuing pension risk transfer activity, including the use of longevity reinsurance and longevity swaps.
“Key to the pricing of annuity transactions is the availability of longevity reinsurance. In this regard, we’re also aware that there are a number of reinsurers that are closely monitoring the UK longevity risk market and considering offering longevity risk cover, either on a standalone basis or to insurers completing bulk annuity transactions. ”
“An increase in the number of global reinsurers taking on UK longevity risk could support an increase in transaction volumes and help pricing remain attractive,” said Hymans Robertson.
