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2015 set to be an attractive year for pension de-risking as more insurers enter the bulk annuity market
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Competition to increase with four new household insurance companies poised to enter market to replace lost income from falls in individual annuity sales
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This follows a record breaking year in 2014 with £38bn of pension scheme liabilities insured across the risk transfer market
Commenting, James Mullins, Head of Buy-Out Solutions at Hymans Robertson said:
“There is a clear opportunity right now for pension schemes, especially small and medium sized ones, to complete bulk annuity deals at highly competitive prices. The conditions are good, but pension schemes will need to move quickly to take advantage of this short window of opportunity.
“The life assurance sector has been hit hard by George Osborne’s ‘freedom and choice in pensions’, which has caused sales of individual annuities to collapse. Insurers are looking to off-set this lost income from the individual market and the corporate pension market is an attractive one, given pension schemes are increasingly keen to insure against their liabilities.
“New providers are likely to offer particularly attractive pricing to the first few pension schemes who transact with them, as they look to build up their capability and credibility. In response, existing providers are likely to reduce pricing to maintain market share. For the next couple of months it’s definitely a buyer’s market as we see the number of insurance companies vying for pension scheme business growing from seven to 11.”
Commenting on the wider risk transfer market, Mullins said:
“2014 was a bumper year for the risk transfer market, with total deals exceeding £38bn. The significant uptake in deals was driven by several factors. First, we’ve seen strong appetite from global reinsurance companies to take on UK longevity risk, reducing the cost of removing life expectancy risk via a longevity swap or bulk annuity. Second, the continued volatility in pension schemes’ financial positions means that they are keener than ever to transfer risks to insurance companies.”
“For many defined benefit pension schemes the ultimate end game is to undertake a full buy-out. While this transaction can be a few years off, a buy-in, which is a bulk annuity purchased by trustees as a special matching asset, is an excellent and popular first step.
“In 2014 we saw a record breaking £13 billion in buy-in and buy-out transactions, including the largest ever buy-out to date, a £2.5 billion deal with TRW and advised by Hymans Robertson. We expect this to rise close to £15 billion of bulk annuity transactions in 2016, once insurers have complete certainty over the new Solvency II requirements. In addition, we expect that the longevity swap market will continue to grow at pace.”
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