The bulk annuity market has shown great resilience throughout this year’s turmoil with over £30 billion of buy-ins and buyouts completed, according to Willis Towers Watson (WTW).
The longevity swap market has been very busy, with over £24 billion of deals completed in 2020 and several more in progress for early 2021.
Despite the challenges brought by the COVID-19 pandemic, WTW said 2020 may just pip 2019 as the biggest year ever in the longevity de-risking markets, with combined transaction values expected to be at a very similar level to last year’s record-breaking £56 billion of liabilities transferred.
WTW predicted that 2021 will look like 2020 with another £30 billion of buy-ins and buyouts expected and £25 billion of longevity swaps to be completed.
Earlier this year, Willis Pension Scheme entered into a longevity swap transaction with Munich Re to manage longevity risk concerning £1 billion of pensioner liabilities.
The arrangement covered pensions in payment in the scheme and provides long-term protection for the scheme against additional costs resulting from pensioners or their dependents living longer than expected.
The longevity risk was transferred to the reinsurer via a Guernsey-based captive insurance company fully owned by the Trustee of the Scheme, established under Willis Towers Watson (WTW) Guernsey ICC.
As has been the case in 2020, 2021 is expected to present opportunities for all sizes of the scheme.
Next year is also expected to see the first deals for superfunds, following the pension regulator’s publication of its interim regulatory regime in mid-2020, WTW predicted.
Commenting, Shelly Beard, senior director in WTW’s transactions team, said: “The fact that the longevity de-risking market has hit the volumes we predicted in December 2019, despite all of the unanticipated headwinds in 2020, is a testament to the strength of the market and the focus that trustees and sponsors have shown this year to do the right thing for members.”
She continued: “A few years ago, many were predicting exponential growth in this market, whereas 2019 to 2021 will all have very similar new business volumes. This reflects general falls in scheme funding levels over 2020 as well as the many other priorities trustees have to focus on this year and next – most notably GMP equalisation.”
“Looking beyond 2021 we expect the market to grow further. Our clients recognise that future prospects for longevity are more uncertain now than at perhaps any time in recent memory. This means that where it is affordable to do so, transferring risk to the insurance market is the prudent thing to do,” she added.
Beard concluded: “The key thing for schemes going into 2021 with de-risking ambitions is to stay agile on the timing of any deal. It seems likely that 2021 will be another year of uncertainty and this may present opportunities for well prepared and flexible schemes.”
