Pensions - Articles - 2014 a record year for pension risk transfer activity


2014 a record year for pension risk transfer activity, driven by insurers looking to replace lost annuity income due to pension freedoms and appetite from reinsurers for longevity risk. Insurance companies now look after the risk associated with over £100billion of pension scheme liabilities

     
  1.   A record breaking £38bn of pension scheme liabilities were insured during 2014 (easily more than double the previous record, set in 2013, of £16.4bn)
  2.  
  3.   Q4 2014 alone saw insurance companies take on the risk associated with £8bn of pension scheme liabilities
  4.  
  5.   Insurance companies now look after the risk associated with £110bn of pension scheme liabilities. This is equivalent to 6.5% of all defined benefit pension scheme liabilities
  6.  
  7.   Hymans Robertson fully expects this trend to accelerate, with close to £15bn bulk annuity transactions and growth in the longevity swap market, which means that individuals will increasingly look to insurance companies to provide the security for their pension
 A flurry of final quarter activity in the risk transfer market, totalling £8bn, ensured a record breaking year for the UK pension scheme risk transfer market as it reached over £38bn during 2014 alone says Hymans Robertson, the independent pensions, benefits and risk consultancy.
  
 Commenting on the risk transfer market performance in 2014, James Mullins, Head of Buy-Out Solutions at Hymans Robertson said:
 “2014 was a bumper year for the risk transfer market, with total deals exceeding £38bn. This significant uptake in deals has been driven by three factors. First, insurance companies are keener than ever to complete bulk annuity deals to replace lost revenue from individual annuity sales, due to the pension freedoms announced in last year’s Budget. Second, we continue to see strong appetite from global reinsurance companies to take on UK longevity risk. This means the cost of removing life expectancy risk via a longevity swap or bulk annuity remains at attractive levels. And finally, the continued volatility in pension schemes’ financial positions means that they are keener than ever to transfer risks to insurance companies.”
 Hymans Robertson had significant involvement in three of the five longevity swaps during 2014, which covered a staggering £25.4 billion of pension scheme liabilities (Aviva, BT, PGL, MNOPF and ScottishPower). Buy-ins and buy-outs also covered a record breaking £13 billion of pension scheme liabilities during 2014, helped by record breaking deals by ICI and Total. In addition TRW, whose trustees were advised by Hymans Robertson, completed the largest ever buy-out covering £2.5 billion of liabilities.
  
 The medically underwritten bulk annuity market also took off in 2014, with over £500m of deals completed in Q4 2014 alone, representing over 10% of all bulk annuity transactions in that quarter.
  
 “The majority of the deals, by value, across the year were driven by longevity swaps and large bulk annuity deals, areas that we expect to see continued growth in 2015. However, the end of 2014 also saw an upsurge in more niche buy-in deals. Over £500m worth of medically underwritten deals took place in the fourth quarter, which was over 10% of all bulk annuity transactions in Q4 2014. This is an area that we expect to see particular growth in 2015, with attractive pricing putting deals over 5% cheaper than traditional buy-in deals.
  
 “The decision on when to de-risk is something that is moving higher up the agenda for pension scheme managers and trustees.
  
 Last year, our research found that 30% of trustees believe having a clear understanding of scheme risks and when to de-risk is the biggest single challenge they face. The significant competition from insurance and reinsurance companies means that pension schemes who are broking the market now will be pleasantly surprised with the attractive current pricing of both buy-ins and longevity swaps.”
  
 “Hymans Robertson therefore expects to see close to £15 billion of bulk annuity transactions during 2015, including around £1 billion from medically underwritten buy-ins. In addition, we expect that the longevity swap market will continue to grow at pace.”
  

Back to Index


Similar News to this Story

Wish list for the occupational pensions industry in 2025
As one year closes and another begins, it's an opportune moment to set our sights on the future. The UK occupational pensions industry faces nume
PSIG announces outcome of Consultation
The Pensions Scams Industry Group (PSIG), which was established in 2014 to help protect pension scheme members from scams, today announced the feedbac
Transfer values fell to a 12 month low during November
XPS Group’s Transfer Value Index reached a 12-month low, dropping to £151,000 during November 2024 before then recovering to its previous month-end po

Site Search

Exact   Any  

Latest Actuarial Jobs

Actuarial Login

Email
Password
 Jobseeker    Client
Reminder Logon

APA Sponsors

Actuarial Jobs & News Feeds

Jobs RSS News RSS

WikiActuary

Be the first to contribute to our definitive actuarial reference forum. Built by actuaries for actuaries.