The volume of UK bulk annuity deals is expected to tip the scales at £12bn this year following a quiet 2015, according to Willis Towers Watson.
The consultant said the volume of liabilities transferred to insurers would remain low in the first part of 2016 as schemes and insurers adapted to Solvency II regulation, which came into force at the beginning of the month, but increase rapidly around spring time.
It predicted around £12bn of bulk annuity and £20bn of longevity hedging deals would be written in the UK market by the end of the year.
Willis Towers Watson’s senior consultant in the de-risking team Shelly Beard, explained: “While most insurers spent much of 2015 preparing for Solvency II, final sign-off on reserving requirements was not provided by the Prudential Regulation Authority until December 2015. This means that as insurers start to submit responses to quotation processes in early 2016, there will inevitably be a period of price discovery for both pension schemes and insurers, as the market looks to understand how different players have been affected by the new reserving rules.
“Our current understanding is that, overall, there will be very little impact on buy-in pricing for pensioners, but pricing for non-pensioners could increase by up to 5%, although this will vary across insurers. However, we do not expect this to limit the growth of the market in 2016 as, to date, non-pensioners have only represented a small part of bulk annuities secured.”
Late last year, consultant LCP predicted the total volume of bulk annuity deals would reach £15bn this year, driven by increased competition among insurers and the introduction of Solvency II.
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