Following the announcement that Rothesay Life has reinsured a £12 billion chunk of Prudential plc’s annuity book, intermediaries have noted increased maturity in the UK bulk annuity market, with 2018 set to be the most active year on record for bulk annuities (buy-ins and buy-outs).
According to James Mullins, Head of Risk Transfer Solutions at Hymans Robertson, the announced Prudential and Rothesay Life transaction, combined with the recently announced Phoenix Group and Standard Life Assurance Limited deal, means the total value of annuity liabilities taken on by eight insurers active in the market “is expected to be around £40 billion in 2018, before allowing for any further consolidation of insurer annuity business.”
The bulk annuity market in 2017 reached £12.4 billion in size, from seven active insurers in the buy-in and buy-out market, helped by a record volume of sub-£500 million transactions, which totalled £8.6 billion.
“2017 saw a real maturity coming to the bulk annuity market, as the volume of sub-£500 million transactions far exceeded any previous year. We believe that these levels of demand will be sustained in 2018, along with a return of the larger transactions that have previously dominated market volumes, which together means that we expect 2018 volumes to exceed £17 billion,” said Mullins.
John Baines, Partner at insurance and reinsurance broker Aon’s Risk Settlement Group, also commented on the Prudential deal and like Mullins, noted growing maturity in the UK marketplace.
“This market development is the culmination of a long process and during that period it’s pleasing that appetite for pension scheme transactions remained undiminished and pricing remained very attractive, even in the context of a mega deal in the market. We believe this shows the UK market has matured, remains very competitive and can cope with this kind of change.
“There will also have been other insurers in the market with an eye on this. In fact, we expect their appetite has only increased as a result of this deal. So while it is a clearly very significant deal we don’t believe there will be any fundamental change to the way the bulk annuity market acts during 2018 – we think it remains on target for at least £30 billion, as we predicted in late 2017,” said Baines.
Mullins, continued: “When an insurer takes on an existing annuity portfolio from another insurer, it is common for a certain amount of transitioning of the underlying assets, which will frequently target the very same illiquid assets that could otherwise be used to provide attractive bulk annuity pricing to a pension scheme. This means that, in 2018 more than ever, pension schemes need to carefully plan how they approach the insurance companies for buy-in and buy-out quotations and demonstrate why they should be a high priority case, using in depth knowledge of the insurance market.”
It’s expected that 2018 will become the most active year ever for buy-ins and buy-outs, with Mullins stating that this is “highly likely.”
