Welcome to our third 2016 edition of Buyout Market Watch. We analyse bulk annuity (buy-in/buyout) and other longevity de-risking market developments and look at the impact of brexit on pension schemes.
The surprise result of the EU referendum on 23 June 2016, has led to repercussions in the bulk annuity market, with falling gilt yields leading to rising scheme liabilities, and ultimately higher bulk annuity prices. This does not necessarily correlate to higher buyout costs; many schemes are well hedged against buyout price movements. With insurers also seeking out alternative illiquid assets to support keener pricing, some schemes may find themselves in an improved position.
Prudential, one of the earliest players in the bulk annuity market, announced in August 2016 their decision to withdraw from the market. Prudential had reduced their activity over the last few years; as such this will have limited impact on quotation opportunities for most schemes.
Insurers are reporting high quotation volumes in the run up to year end; therefore, for those schemes already in the market, pricing opportunities will be available for transactions in the final quarter. Overall, new business levels in 2016 will be a lot lower than in 2015; it is likely that c£7bn-£8bn of bulk annuity transactions will be written in total, which would still be very successful in the current environment.
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