UK pension insurance deals jump to record $50 billion in 2019, more in pipeline - advisers

Industry sources also expect a mammoth 11 billion pound bulk annuity deal from the British Steel Pension Scheme next year. BSPS said in an October consultation it planned to buy a bulk annuity if its funding level reached 103% on a buy-out basis - factoring in the cost of insurance.

 

LONDON:-

The UK bulk annuity market, which involves insurers taking on the risk of company pension schemes, has soared to record levels above 40 billion pounds ($51 billion) in 2019 and is expected to stay strong as costs fall, advisers said.
 

Bulk annuities have proved a revenue-earner for FTSE 100 insurers such as Legal & General (LGEN.L) and Aviva (AV.L), with unlisted firms Pension Insurance Corporation and Rothesay Life also among the eight providers.

 

The deals are designed to help companies tackle deficits in Britain’s two trillion pound defined benefit, or final salary pension sector. They remove pension risk from companies’ balance sheets, making it easier to raise debt or merge with others.

 

The pension funding problem is Europe-wide, as years of central bank stimulus have depressed interest rates, leading to gaps between the fixed sums the pension schemes pay out and their investment income.

 

In Britain, most defined benefit pension schemes are shut to new members. As existing members age, it becomes easier for insurers to price the risk, reducing the cost of a bulk annuity.

 

“The market seems to be running at full tilt,” said Harry Harper, head of risk transfer at XPS Pensions Group, which predicts the market to reach 42 billion pounds this year and a similar amount next, compared with around 25 billion pounds in 2018.

 

Mercer and Hymans Robertson also said they expected the market to top 40 billion pounds this year, though Hymans Robertson saw 2020 volumes falling to 30 billion pounds due to a smaller number of mega-deals compared with 2019.

 

Bulk annuities have also attracted over 10 reinsurers to help insurers share the risk. New reinsurer Langhorne Re has a pipeline of UK deals, a spokeswoman told Reuters by email.

 

However, the cost of a bulk annuity remains too high for many firms, industry sources say.

 

The market expects competition from pension managers running a number of schemes together in cheaper so-called superfunds, for which the regulation is still to be finalised.

 

L&G is also offering a product that it says is similar to a superfund.

 

L&G’s new product is likely to see its first deals next year, Stephan Erasmus, head of client solutions in the insurer’s pension risk transfer team, told a media presentation this week.

 

Industry sources also expect a mammoth 11 billion pound bulk annuity deal from the British Steel Pension Scheme next year. BSPS said in an October consultation it planned to buy a bulk annuity if its funding level reached 103% on a buy-out basis - factoring in the cost of insurance.


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