2013 was the most active year ever for buy-in, buy-out and longevity swap activity with over £16 billion of liabilities hedged. This was made up of £7.4 billion of buy-ins and buy-outs, together with five large longevity swaps adding a further £8.9 billion.
LCP analysis of insurers’ data for 2013 shows Pension Insurance Corporation (PIC) was the lead insurer for 2013 with £3,745 million of buy-ins and buy-outs announced, giving PIC a market share of 50% and continuing its leading position from 2012.
PIC’s deals included EMI, NCR, TI Group and First Quench. PIC’s figures compare to £1,670 million (22% market share) by second-placed Rothesay Life with notable deals including Philips, InterContinental Hotels, Smith & Nephew and Cobham. Legal & General was the third insurer to write over £1 billion with £1,314 million, equating to an 18% market share.
The longevity swap market also had a bumper year with £8.9 billion premium written across five transactions, making 2013 the biggest year ever for longevity-focused de-risking.
Emma Watkins, partner at LCP commented: “2013 has beaten all years on record. We saw a general increase in activity and interest, particularly from large pension schemes, with the average transaction size increasing by over 30%. With affordability increasing due to higher gilt yields and a 20% rise in UK equities, we can only see activity levels going up in 2014.”
Looking ahead, LCP predicts that buy-in and buy-out volumes for 2014 will be even larger than the £7.4 billion seen in 2013 and could exceed £10 billion for the first time. Whilst LCP anticipates that pensioner buy-ins will continue to be the most popular option for schemes in 2014, a shift towards more full buy-outs (driven by improved affordability and corporate appetite) and larger average transaction sizes is expected.
As in previous years longevity swaps are expected to be concentrated in a relatively small number of high value transactions. Despite expectations that the market will become more accessible for smaller pension schemes, it is anticipated that longevity swaps will continue to be limited to larger pension plans in 2014.
Emma Watkins continues: “We have every reason to expect that 2014 volumes will continue the positive momentum from last year. As pension plans hedge larger proportions of their interest rate and inflation risk, longevity risk will become a more significant part of every pension plan’s remaining risks. A buy-in or longevity swap is a natural way to hedge this risk and we can see this trend coming through in the 2013 statistics.”
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