On the go: Defined benefit schemes are expected to see £1tn of risk insured by buy-ins, buyouts and longevity swaps by the end of 2031, according to new analysis.
Since 2007 buy-ins, buyouts and longevity swaps have seen £300bn insured, according to Hymans Robertson’s ‘Annual risk transfer report’, with around £450bn of the future £700bn growth coming from bulk annuity deals, at an average of £40bn a year until the end of 2031. Longevity swaps are expected to make up the remainder.
Last year saw £55bn of DB scheme risk transferred to insurance companies, marking that the second-highest total on record. Bulk annuities accounted for around £30bn, while longevity swaps made up £24bn.
James Mullins, head of risk transfer at Hymans Robertson, explained that “£1tn of insurance would be equivalent to around half of the value of all gilts currently issued by the UK government, or around half the value of all of the companies in the FTSE 100”.
“Indeed, with the level of growth in pension scheme buy-ins and buyouts that we are projecting, we can expect to see several insurance companies become some of the largest companies in the FTSE 100 over the next 10 years,” he said.
Hymans Robertson’s analysis projected that demand from pension schemes for bulk annuity transactions over the next decade will be driven by a combination of factors, “such as funding requirements, meaning that sponsoring employers will need to fund pension schemes to a higher level, and the cost of insuring deferred member liabilities having reduced materially in recent years”, Mullins continued.
“These points mean that the additional money a pension scheme needs to get to buyout is less than it has been in the past. This gap will reduce further as pension schemes mature, as more contributions are paid in and as investment risk is reduced further.”
The UK’s transfer market is world-leading, with the longevity risk associated with 17 per cent of risk now being insured via buy-ins, buyouts and longevity swaps, up from just one per cent a decade ago, Mullins said.
“Pension scheme risk transfer is developing rapidly in other countries too, such as the US, the Netherlands and Canada, and those countries are watching with interest how the market develops in the UK,” he concluded.
