XPS Risk Transfer News
Bringing you the latest news, insights and opinion on buyout, buy-in, bulk annuities and discharging risk
A market on fire, with 8 insurers standing on the gas
The bulk annuity market is pressing on at full speed. Volumes have gone from £1bn of bulk annuities in 2006 to £42bn of bulk annuities expected to be sold in 2019. The market does not appear to be able to go any faster, yet shows no sign of slowing down either this year or next, with the 8 insurers continuing at least for the moment to prefer volume over higher margin.
A series of huge schemes transactions have occurred in 2019 and been publicly disclosed
Insurer pricing remains volatile, but with no clear trend
Based on monthly insurer model points we track typical pensioner and deferred member pricing relative to gilt yields. Despite the obvious volatility in pricing, the chart is showing that insurer pricing has no decisive upwards or downwards trend over the last two years, relative to the cost of meeting the same liabilities with gilts, As always, pensioners in payment remain cheaper to insure than deferred members. Good pricing during the period, for a medium sized scheme, has been:
- Pensioner pricing: Broadly equal to the liability measured on a ‘gilts + 0.3%pa’ yield; and
- Deferred member pricing: Broadly equal to the liability measured on a ‘gilts – 0.5%pa’ yiel
Pricing at the end of 2019?
A few insurers say that discounts ‘might’ be available if they are short on volume by the year end. However, most indicate they are now looking to complete the cases they have already quoted on and intend to try and push other ‘new’ transactions back into 2020. Overall it feels that end of year discounts will be few and far between.
Pricing in the New Year?
Our best guess is that pricing will be the same in 2020 as in 2019, but this is only on the assumption that the pace of pension schemes coming to the bulk annuity market does not increase any further.
Financial market and political volatility is the big unknown and could cause huge movements in insurer pricing and scheme asset values. This could create bargains for some, and huge problems for others.
For more information about buyout, buy-ins and bulk annuity transactions see here.