BuyOut Market Key Developments

18 May 2017

2016 turned into another bumper year for the bulk annuity market, despite the early paralysis from the introduction of Solvency II on 1 January 2016 and not withstanding drastic increases in pension scheme funding deficits due to falling bond yields.

During 2016 over £10bn of bulk annuities were purchased by pension schemes as sponsors and trustees became increasingly determined to offload their risk. In line with this activity, JLT advised on a significant 15 buy-in/ buyout deals over 2016; almost 15% of total deals struck.

During 2017, pension schemes and sponsors should watch for possible market pricing changes. These can create pricing opportunities at little or no notice for schemes that are in a position to transact quickly. Past examples are the huge pricing opportunities following the 2007/08 financial crisis, plus the more modest opportunities, lasting for merely a week, following the Brexit vote. There continue to be political uncertainties across Europe with key elections in the UK and Germany, plus divorce proceedings initiated by the UK, with the relentless Europe-wide high national debt problem looming in the background.

The longevity swap market has been a little quieter from the pension scheme point of view; the recent higher than expected pensioner death rates may be a factor. Another temporary cause may be the introduction of Solvency II, which incentivises insurers to trade mortality risk between themselves in preference to taking on more from pension schemes.

For more information, please contact Harry Harper, Director and Head of Buyouts at harry_harper@jltgroup.com.

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