Global insurance and reinsurance brokerage, Willis Towers Watson (WTW), is expecting a busy year in the longevity de-risking markets after a record-breaking 2019.
In 2019, £41 billion of bulk annuities completed alongside £12 billion of longevity swaps, making it a record year for the longevity de-risking sector.
In a recent report, WTW notes that the market will remain busy in 2020 with “another bumper year for longevity hedging and bulk annuities” expected on the back of a new regulatory regime, changing mortality, and also shifting scheme and insurer demands.
Ultimately, the re/insurance broker believes that four factors are set to determine what schemes need to consider as they explore de-risking in 2020. This includes a continuation of busy market conditions, a record year for longevity swaps, impact on insurers, and an uptick in commercial consolidation.
For 2020, the forecast total volume of bulk annuity business stands at £30 billion, with less multibillion transactions anticipated when compared with 2019.
For the longevity swap market, WTW is predicting a record year for activity and says that the market is expected to exceed volumes of £25 billion, with most of this being weighted towards white collar schemes.
“Opportunities for blue collar schemes will arise throughout the year as the reinsurers who have already won business seek to diversify and the others will target schemes that better suit their preferred member demographics,” says WTW.
Regarding the impact on insurers, WTW says that the Pension Scheme Bill, which imposes a requirement on trustee boards to develop a long-term funding objective, is likely to result in a greater focus on longevity risk management through bulk annuities and longevity swap deals.
“More schemes will transfer their exposure to insurers as a means of risk reduction or to settle liabilities, and trustees and corporate sponsors will need to work closely with advisers to decide on the appropriate longevity hedging solution,” says the broker.
WTW also notes the delayed response from the Government surrounding the regulatory regime after the closure of the consultation on the framework for authorising and regulating commercial consolidators. The delay provides market players with an opportunity to consider commercial consolidation, which, coupled with clearer regulatory developments are expected to boost market activity in 2020.
Shelly Beard, Senior Director at WTW, commented: “The number of mega deals completed through 2019 shouldn’t be repeated in 2020, but there is certainly a lot of demand for deals across the market.
“The changes in pricing over the past few years do show that the importance of choosing the right time to complete a transaction rather than simply leaving it to chance. Knowing your target price, retaining price discipline and flexibility are all key to achieving the best deal possible in this new market environment.”
