The bulk annuity and longevity swap markets had a relatively modest start to 2017 with only just over £1bn of transactions publicly announced at the end of March, despite market commentators predicting a record breaking year for these markets.
But Ian Aley, Head of Transactions at Willis Towers Watson, says this statistic doesn’t fully capture the level of activity in the market: “The buy-in market is currently very active, perhaps the busiest I have ever known it to be. We have completed two buy-ins, each covering over £100m of liabilities in April so far, and are advising on five deals covering over £1.5bn of liabilities which are expected to close over the coming few weeks. One notable feature of the current market is the level of competition for deals between £100m and £300m of liabilities – we are seeing seven insurers quoting on many deals, leading to significant competitive tension as the insurers fight to win deals – great news for pension schemes!
“We have observed pricing that has consistently been at levels last seen in the financial crisis of 2008/9, making the case for pensioner buy-ins highly compelling relative to holding a portfolio of gilts and credit. I believe there are two key drivers of this. Firstly, reinsurers have recently started to reflect the heavier levels of mortality seen over 2015 and 2016 into their pricing. This is reducing the cost of longevity hedging for the buy-in providers, feeding straight through to pricing. Secondly, there is a limited supply of suitable high yielding assets to facilitate attractive pricing for very large bulk annuities, which is therefore causing the insurers to focus on the mid-size market.”
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