The bulk annuity market in 2019 is set to show further strong growth, with deals expected to top £30 billion over the course of the year, according to Willis Towers Watson.
Key themes the firm has said to look out for in 2019 include a doubling to over £10 billion in longevity swaps; an increasing number of “mega deals” over £1 billion but potential for upwards pressure on price as insurers take advantage of shifting supply and demand.
WTW expects the bulk annuity market to remain at historically high levels in 2019, despite capacity constraints beginning to bite for the first time, and potential upwards pressure on pricing as the demand/supply ratio shows signs of shifting.
Nonetheless, buyouts remain more affordable than many companies might expect, thanks to a combination of falling longevity, strong equity markets, and the potential for cost savings in future governance and other ongoing costs.
“2018 was a record breaking year in the bulk annuity market, including four “mega” transactions of over £1 billion, and we expect to see this buoyant level of activity to continue into 2019,” said Ian Aley, Head of WTW’s Transactions team.
“Though capacity issues are starting to impact on insurers, and strong demand could lead to some upward pressure on pricing, buy-ins and buyouts remain at historically attractive pricing levels.”
“Against this buoyant backdrop, pension schemes will need to be particularly mindful of how best to get traction in such a busy market.”
“For smaller schemes this is likely to revolve around streamlining processes, with good preparation, governance and pre-agreed legal terms, while larger schemes should consider partnering with insurers to find optimal assets to match their liabilities.”
The firm does not expect a significant impact from Brexit for this market, although continuing market volatility, if it leads to a widening of credit spreads, could further improve the relative pricing of buy-ins.
WTW also forecasts a significant upturn in the volume of longevity swaps, from around £5 billion in 2018, to over £10 billion in 2019.
This reflects the significant amount of investment de-risking most of their clients have undertaken, with longevity risk now being the dominant remaining risk.
