On the go: Bulk annuity provider Pension Insurance Corporation has secured a record-breaking £7bn of reinsurance to date in 2019.
The availability of reinsurance, where bulk annuity providers pass on longevity risk to another specialist insurer, is a key factor in determining the capacity for defined benefit schemes to reach buyout or sign buy-in deals. Without reinsurance, the eight active pension insurers are constrained by their ability to raise and allocate capital to back DB promises.
Reinsurer’s appetite for this risk is improving, according to the latest update from PIC. In the year to date it has cleared £7bn of its longevity risk from its books, and is now exposed to just 30 per cent of risk from the bulk annuities it provides, having transacted with 11 other insurers since the company’s inception. Some £1.5bn of the reinsurance agreed this year concerned deferred members, who are typically more costly to insure.
PIC has also processed high volumes of bulk annuities over the first half of the year, with £5.8bn of new business including deals with Marks & Spencer, Dresdner and Co-op. Consultants predict that 2019 will again eclipse the record-breaking 2018 bulk annuity volume, as the market gears up to take its slice of a mature DB market worth nearly £2tn on a buyout basis.
Jay Shah, chief origination officer at PIC, said: “This has been a record-breaking first half for PIC, both in terms of the amount of new business transacted and longevity risk reinsured.
“On the longevity reinsurance we are especially pleased to have insured such a large amount of deferred lives. This is a significant development for the reinsurance market, where we are now starting to see the standardisation of these types of deals, which we have had for several years for pensioner deals.”
