Buyout Market Update

07 June 2018

2017 was another big year for the bulk annuity market. Which trends will we see continue and what’s new for 2018?

Last year was the fourth consecutive year where over £10bn of new bulk annuity business was written. Remarkably, all business in 2017 came from mid-sized deals, i.e. those ranging from £100m - £900m, with no mega - £1billion plus - sized individual deals or insurer back-book transactions.

In 2018 this has already changed; there are several potential £1billion plus transactions out at market, with one mega deal, Rothesay Life’s £12bn acquisition of part of Prudential’s annuity book, already transacted in Q1.

A number of smaller and mid-sized size deals have taken place already in Q1 as that section of the market remains very busy. The ones hitting the press relate to a mix of Q1 2018 transactions and late-announced H2 2017 transactions, including the Post Office’s £450m buy-in with Rothesay Life, the buyout of 5 schemes by WPP with PIC, the Sea Containers £187m PPF+ buyout with Aviva and Kingfisher’s £209m buy-in with PIC.

Why all this interest? There are a number of reasons why more schemes are coming to market. Foremost is the current insurer pricing, which is getting more attractive for both pensioner only transactions and full scheme buyouts. In addition:

  • many schemes have seen improving funding levels
  • there is a desire for sponsors to remove pension liabilities from their balance sheets
  • bulk annuities are frequently being considered as an investment class, forming a key part of schemes’ investment portfolios.

You can read the views of four insurers on the 2018 broking year in an article which appears in our latest Buyout Market Watch.

With substantial insurer pipelines, it is even more important to be well prepared when coming to market. What we mean by this is that trustees should understand affordability, have data to hand, have ironed out any material loose ends in the scheme’s benefits and shouldn’t leave it too late – if there is a desire to transact in 2018 a scheme should realistically be in the market by early Q3.

The way the bulk annuity market operates is also changing. After taking a long hard look at the practices universally used to obtain UK bulk annuity quotations over the last 20 years, we have made significant and long overdue changes, moving away from benefit specifications and separate scheme files. Early evidence is this has brought regular transaction-level pricing within the reach of all pension schemes for the first time. Read our article Bulk Annuity Broking Revolution to find out more.

For more information on any of the topics covered in this article, speak to your usual JLT contact, or David Barratt, Senior Consultant in the JLT Buyout Team (david_barratt@jltgroup.com)

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