The value of pensions de-risking deals will exceed £30bn this year, returning to a level of activity last seen in 2014, according to Willis Towers Watson.
The consultant predicted the level of liabilities insured through buy-ins, buyouts and longevity swaps this year would be considerably higher than the £11bn in 2016 and £18bn in 2015.
It said the increase would be driven by a strong pipeline of deals, greater engagement by smaller schemes, and higher levels of innovation which will improve buy-in affordability.
As a result, WTW said activity would return to a similar level observed in 2014 when schemes insured £39bn of liabilities.
According to the firm, last year £9bn of liabilities were hedged through around 100 bulk annuities (£4bn in the fourth quarter), while only £2bn of longevity risk was passed by schemes into the reinsurance market. This compared to £12.3bn across 175 bulk annuity deals and £6bn of longevity swaps in 2015.
It said activity in 2016 was blighted by the industry allowing for the bedding-in of Solvency II and the uncertainty generated by events such as the referendum which caused headwinds across the market.
Willis Towers Watson de-risking team director, Shelly Beard, said: “2016 was very much a year for taking stock, with uncertainty following the UK’s EU referendum certainly subduing the overall level of activity taking place. Insurers have focused on their Solvency II capital positions, back book transactions and building up their pricing team capabilities.
“Relative to the preceding 18 months, the second half of 2016 saw a marked increase in the value available in the bulk annuity market. Consequently, providers are entering the New Year with strong pipelines and several deals expected to trade in January, and more of our clients are approaching the market than ever, so we expect 2017 to start from a very healthy position in terms of appetite and deal pipelines.”
The consultant said another factor for the reduced activity was the distraction of providers by ‘back book’ deals whereby insurers look to transfer their historic bulk and individual annuity business to another provider. One example of this was Aegon’s transfer of £9bn to Rothesay Life and Legal & General last year.
Beard said these deals would affect the timing of schemes approaching the market.
“We expect that this element of the market may distract some of the buy-in providers at various points in the year,” Beard added. “On a more positive note, some insurers will offer more attractive pricing opportunities if they have been left disappointed after missing out on attractive back books.”
