Bulk annuity and longevity-hedging markets saw a quiet 2015 compared to the previous year, but appetite from both pension schemes and insurers picked up significantly towards Q4, according to Willis Towers Watson.
In Q4 2015, Willis Towers Watson secured £5 billion of liabilities with insurers, either via longevity hedges or bulk annuities.
In November and December, the company helped clients secure eight separate bulk annuities, covering over £650 million of liabilities.
Willis Towers Watson believes that 2016 will be slow starting for the bulk-annuity and longevity-hedging markets, but predicted they would pick up around spring.
Shelly Beard, senior consultant in Willis Towers Watson’s de-risking team, said: “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.”
Beard added: “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 percent, 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.”
Willis Towers Watson estimates that there are likely to be longevity-hedging deals covering over £20 billion of liabilities in 2016.
In the bulk-annuity market, it will allow the bedding on Solvency II, which the company expects to continue throughout the year, with approximately £12 billion of liabilities transferring to insurers.
The trend will be supported by the unprecedented number of pension scheme clients currently aiming to secure and implement transactions, according to Willis Towers Watson.
Beard commented: “Two new insurers completed deals in H2 2015 in the small- to medium-sized transaction market and we expect there are several other companies closely monitoring the marketplace with a view to developing bulk-annuity propositions.”
“In addition, there is currently significant interest in the UK bulk-annuity market from potential suppliers of capital, which will allow both existing providers and new entrants to continue to write sizeable new business. This can only be a positive development from pension schemes’ perspectives, with new entrants driving prices down and innovation up.”
