Derisking trend to continue apace
On the go: Pensions consultancies say bulk annuity volumes could reach this year’s £40bn mark again in 2020, but put the ‘new normal’ for the industry at closer to £30bn.
A combination of rising funding levels, increased maturity of liabilities and increasing regulatory requirements have led to a boom in the market for buyouts and buy-ins. Total volumes are anticipated to exceed £40bn during 2019, a huge increase on the £24bn transacted in 2018.
Demand for these solutions is likely to remain feverish, particularly in the opening months of 2020, according to separate analyses by LCP and Willis Towers Watson.
The consultancies point to the large number of multibillion-pound ‘mega deals’ as an indicator that a flood of smaller schemes are ready to transact, but were unable to pique insurers’ attention during the past 12 months.
Nine deals covered liabilities in excess of £1bn. Among household names such as National Grid, Asda and British American Tobacco all transacting, the largest was a £4.7bn buyout of the GEC 1972 Plan with insurer Rothesay Life.
But despite continued demand for insurer pricing, both LCP and Willis Towers Watson highlight £30bn of insurance deals as a more realistic target for next year. Willis Towers Watson said macroeconomic conditions could drive pricing volatility and create attractive opportunities, while LCP said these conditions could swell the market back towards its 2019 totals.
Myles Pink, partner at LCP, commented: “Insurance appetite looks strong in the mid-term, and annual volumes of £30bn in the derisking market could be the new normal for the market. Demand will remain high as more pension schemes approach maturity and are successful in reaching their long-term funding target.”
Ian Aley, head of Willis Towers Watson’s transactions team, said: “This year has seen a remarkable number of mega deals, so although we expect a reduction in the number of large deals through 2020, there is certainly lots of pent-up demand in both the longevity swap and bulk annuity markets.
“Larger schemes should consider partnering with insurers to find optimal assets to match their liabilities. There is a great opportunity for smaller schemes to find more traction in the market if they can focus on streamlining processes, with good preparation, governance and pre-agreed legal terms.”