Seven of the biggest bulk annuity transactions in 2019 amounted to over £24 billion, exceeding the total amount managed in 2018 across 162 transactions, says actuarial and advisory consultancy firm Hymans Robertson.
Furthermore, a record £10 billion of deferred member liabilities were insured during 2019.
Hymans says this is a result of improved pricing for insuring deferred members as insurers get better at sourcing long-dated assets and are increasingly able to share the longevity risk with reinsurers.
Pension scheme funding levels have also improved with solid asset performance and recent falls in life expectancy.
However, Hymans says concerns regarding insurer capacity to keep pace with pension scheme demand looks set to continue, with insurers now much more selective about which pension schemes they provide buy-in quotations for.
The report tells of one leading insurance company which declined to quote on around 50 buy-in requests, reflecting a total value of over £10 billion of business.
Competitive pricing remains but the increase in demand makes it all the more important for trustees to prepare thoroughly before approaching insurers for quotations, to ensure they can clearly demonstrate why their pension scheme should be a high priority case.
“In 2019 there were 10 transactions over £1bn and five transactions over £3bn, including the largest ever buy-in and buy-out,” James Mullins, Partner and head of risk transfer at Hymans Robertson explained.
“These mega-transactions inevitably receive top priority from several of the insurers, which means that smaller pension scheme transactions need to work even harder to stand out from the crowd.”
On the reduction in the cost of insuring deferred members, James Mullins commented that, “Not all trustees and sponsoring employers are aware that the cost of insuring deferred member liabilities has materially reduced in recent years.”
“Pension schemes need to make sure they have access to a well-informed and realistic view of the cost of buying-out, to avoid missing out on opportunities to insure risk much earlier than they may have believed was possible.”
