On the go: The momentum in pension buy-ins and buyouts continues unabated, with a record £34bn of deals completed over the year to June 30 2019.
Bulk annuity deals for UK pension schemes reached £17.6bn in the first half of 2019, up from £7.8bn in H1 2018, according to research from Lane Clark & Peacock of insurers’ half yearly results published on August 8. Total deals of £34bn over the past year were more than double the £14.9bn over the previous year to June 30 2018.
Legal & General and Pension Insurance Corporation were largely responsible for the growth in volumes, with 70 per cent of H1 2019 business written between them.
The record volumes were boosted by the three largest transactions ever recorded: the £46bn pensioner buyout of Rolls Royce in June 2019, the £4.4bn pensioner buy-in by British Airways in September 2018, and the £3.4bn buy-in by British American Tobacco in May 2019. There have been two further transactions in excess of £1bn to date in 2019, involving the schemes of Marks & Spencer and Commerzbank.
The reason for the frenetic activity, notes LCP, is that “the average FTSE 100 company has seen affordability for a buyout increase by over 10 per cent over the last two years. This improvement has been driven by stalling life expectancies, good asset performance and competitive insurer pricing”.
Charlie Finch, partner at LCP, expects the buoyant market to continue: “In the past week alone we have seen giant longevity-hedging transactions announced by British American Tobacco and HSBC, taking the number of FTSE 100 transactions to six so far this year.”
He adds: “Insurer pricing has held up well and we continue to expect 2019 full year buy-in and buyout volumes to exceed £30bn.”
But will capacity be a constraint on record demand? LCP notes: “The specialist insurers now have established track-records of raising capital and significant back-books which release reserves to support new business. Over the past two years insurers have benefited from such releases in reserves arising from lower future mortality projections. However, all the insurers would need to raise more capital to write significantly higher volumes.”
