Where does this leave the MUBA market? As both Just Retirement and Partnership Assurance have been the main drivers of this market, writing the vast majority of transactions to date, it is likely that there will be a lot less multiinsurer MUBA broking exercises during 2016. However, we expect to see Just Retirement participating in traditional broking processes by quoting on a post-deal underwriting basis instead.
There has been a lot of quotation activity during Q1 2016, with all insurers managing resources and workloads, leading to some schemes struggling to get even one insurer to provide a quotation. Insurers continue to consider each transaction on merit – size is significant; however, more important is how well prepared a scheme is to transact, including the likelihood of a deal being completed.
Although quotation activity is high, completed transactions are not. The largest transactions published over 2016 to date include:
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Rothesay Life - £6bn reinsurance of Aegon’s annuity book (April 2016), expected to lead to a transfer of the underlying assets and liabilities to Rothesay Life subject to regulatory approval
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PIC - £300m pensioner buy-in for the VA Tech UK Pension Scheme (April 2016), sponsored by Siemens
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PIC - £900m pensioner buy-in for the Aon Retirement Plan (May 2016), following which PIC re-insured longevity risk for £760m of the liabilities with Prudential Insurance Company of America (PICA)
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Scottish Widows - £630m pensioner buy-in with the ICI Pension Fund (June 2016) taking the scheme’s total liabilities insured to over £1.25bn.
WHAT WILL H2 2016 BRING?
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Further growth: 2015 saw liabilities in excess of £12bn transferred to the insurance market through either buy-ins or buyouts. We expect to see this level or more of new business over 2016.
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More new entrants: The second half of 2015 saw transactions completed by two new insurers, Canada Life and Scottish Widows, and although LV= have postponed their market entrance, other insurers are closely monitoring the development of the market. It is likely that some of these will develop their bulk annuity propositions over
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2016. This can only be a positive development from a pension scheme’s perspective, with new entrants driving prices down and increasing innovation.
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Use of top-slicing: An improved understanding of longevity risk has led to many schemes identifying significant concentrations of liabilities within a relatively small number of individuals. Through a combination of different de-risking strategies, insurer interest (Just Retirement, Legal & General and also Aviva) and highly attractive pricing seen in the MUBA market, we would expect a number of top-sliced MUBA transactions to complete during the year.
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Increase in purchasing power of smaller schemes: A number of insurers concentrate their resources on the large bespoke transactions, which can leave smaller schemes finding it difficult to obtain quotations. However, as the larger transactions are more complex, they generally have a long lead-in time to transact, with only a
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few transactions taking place at any time. Some insurers therefore remain keen to work with smaller schemes. An increased standardisation of contracts and processes has made the bulk annuity market more accessible and affordable for smaller schemes; albeit as all insurers have limited capacity to provide quotations (due to finite resources), smaller schemes must make themselves attractive through clean data, an agreed benefit structure, and setting a clear affordability trigger.
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