LCP analysis shows that Q3 2013 set a new record for buy-in and buy-out volumes, with £3.9bn of premiums written in the quarter.
Over the past six years, quarterly volumes have hit a low of £282m (Q1 2011) and have exceeded £1bn on 13 occasions. However, up until now the only other quarter to exceed £3bn premium was Q4 in 2011 when two landmark transactions – for Uniq at £830m and T&N at £1.1bn both rescued from PPF assessment - contributed to a then record of £3.2bn.
Pension Insurance Corporation (PIC) continues to lead the field with £1.9bn of buy-in and buy-outs announced in the third quarter, including the record £1.5bn buy-out by EMI announced in July. This brings PIC’s total to £2.7bn for the year to date, a market share of around 50%, furthering its dominant position of 2012. PIC’s total compares to £1.4bn year to date by Rothesay Life, including the £484m buy-in for Philips in Q3, a market share of share of around 25%. Legal & General came third with a total of £1.1bn year to date excluding £1.4bn of annuity assets resulting from the acquisition of Lucida plc.
Commenting on these results, Emma Watkins, partner at LCP said “Records have been tumbling this quarter. Not only have buy-in and buy-out volumes set a new high for a quarter, but it is the first quarter that two insurers have independently written more than £1bn of premium each. Indeed, with over £5.5bn of buy-ins and buy-outs written year to date, 2013 has already set a five-year high.”
In our half year comment in August, LCP predicted less of a “year-end sale” in 2013 as key insurers hit volume targets ahead of schedule.
Watkins continued “We expect to see a quieter fourth quarter, with perhaps a further £1bn premium written – half the average £2bn of premiums written in the same quarter over the last 3 years. Indeed, rather than racing to complete a transaction prior to the year end, competitive pricing is also likely to be available in the first half of 2014 when insurers’ capacity is at its greatest. If all the transactions that are currently considering completing a buy-in or buy-out do take these forward in 2014, there is a very real possibility that there could be a capacity crunch towards the end of the year.”
“If this happens, then new capacity from interested investors will be attracted to the market, although there may be a time lag until this can support higher transaction volumes. As a result, 2014 is likely to see very focused activity from insurers directed on schemes ready and able to transact.”
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