• Opportunities still exist for the “right” schemes in the medically underwritten bulk annuity market
• Weakening of sterling following Brexit may help to improve transaction affordability
• Being prepared and actively managing the de-risking journey is key to achieving the best possible transaction
The report, which highlights the important considerations for employers and trustees in order to transact successfully, finds that:
• 2015 was another strong year for the bulk annuity market particularly at the end of the year as the implementation of Solvency II approached. The first half of 2016 has been quieter with the retail annuity books of some insurers providing competition for pension schemes.
• The medical underwriting market can continue to offer attractive pricing opportunities for the right schemes, with the total volume of medically underwritten business insurers now exceeding £2bn.
• “Brexit” has highlighted the need for schemes to be actively monitoring their position, as several opportunities came to light around the referendum date. For overseas parents movements in the exchange rate can also increase the attractiveness of de-risking.
• Ultimately being prepared and actively managing the de-risking journey is key to achieving the best possible transaction.
This includes considering data, liability management exercises and getting engagement between the sponsor and the trustees
Gavin Markham, partner and head of bulk annuity consulting at Barnett Waddingham, commented: “For this year’s report we have sought views from the insurers themselves on some key issues including factors affecting growth in the market and their assessment of a transaction coming to market. Their views provide an interesting insight into how the insurers are placed.
“Whilst the financial conditions may be challenging, there are still opportunities for schemes. Being prepared and understanding what those opportunities are for the scheme’s own circumstances should be high up the agenda of corporates and trustees.
“The development of actuarial tools has really helped schemes understand the risks they are facing, such as longevity. Modelling can be done on the different elements of longevity risk and for different groups of members. This type of analysis also allows the long term longevity risk to be assessed alongside the financial risks to provide the full picture.
“Solvency II is still in its relative infancy, with insurers still trying to make the most efficient use of their assets. This can result in further opportunities for particular characteristics of schemes, meaning it is important to understand how the insurers operate and when these opportunities might arise."
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