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Bulk annuity and longevity hedging market update – January 2019

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By Ian Aley and Shelly Beard | January 21, 2019

Our monthly update of the latest developments in the bulk annuity and longevity hedging market, covering recent pricing and notable deals in the market.

The charts below summarise recent pricing/deals in the bulk annuity and longevity hedging market. The bulk annuity market continues to be very busy with a record-breaking £21 billion of liabilities transferred to insurers in 2018. This trend is set to continue into 2019, with £30 billion worth of bulk annuity deals expected.

Figure 1 shows the typical yield achievable on pensioner-only bulk annuities, relative to a portfolio of gilts, over recent years. In other words, the purple line indicates typical buy-in pricing for pensioner liabilities. The actual pricing available in the market can vary depending on the specific characteristics of a scheme or transaction, as indicated by the shaded region.

Where the purple line is at, or above, the gilts line, this suggests that a scheme may be able to swap a portfolio of gilts covering a set of pensioner liabilities for matching annuities at no additional cost to the scheme or sponsor. Recent bulk annuity prices are, relative to gilts, as attractive as at any stage in the recent past and provide the opportunity to remove risk at a price below that of gilts.

Figure 1. Pensioner buy-in pricing over recent years
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Overview of deals

  • December 2018: £30m buy-in for a confidential Willis Towers Watson client
  • December 2018: £5m buyout for a confidential Willis Towers Watson client
  • December 2018: £140m buyout for a confidential Willis Towers Watson client
  • December 2018: £110m buyout for a confidential Willis Towers Watson client
  • December 2018: £7m buyout for a confidential Willis Towers Watson client
  • December 2018: £15m buy-in for a confidential Willis Towers Watson client
  • December 2018: £150m buy-in for a confidential Willis Towers Watson client
  • December 2018: £30m buyout for a confidential Willis Towers Watson client
  • December 2018: £1.5bn buy-in for the Rentokil Initial 2015 Pension Scheme
Figure 2. Volumes of business by year

Figure 2. Volumes of business by year

Market terms are subject to considerable variability and at any one date a wide range of quotations could be obtained from different providers. Ultimately, the actual position can only be determined by obtaining actual quotations and completing a buyout.

Settlement Watch uses actual insurer pricing supplied via a regular feed of data from a range of insurance companies including Aviva, Just, Legal & General, Pension Insurance Corporation, Rothesay Life and Scottish Widows.

Footnote

Willis Towers Watson has prepared this material (Settlement Watch) for general information purposes only and it should not be considered a substitute for specific professional advice. In particular, its contents are not intended by Willis Towers Watson to be construed as the provision of investment, legal, accounting, tax or other professional advice or recommendations of any kind, or to form the basis of any decision to do or to refrain from doing anything. As such, this material should not be relied upon for investment or other financial decisions and no such decisions should be taken on the basis of its contents without seeking specific advice. This material is based on information available to Willis Towers Watson at the date of this material and takes no account of subsequent developments after that date. In preparing this material we have relied upon data supplied to us by third parties. Whilst reasonable care has been taken to gauge the reliability of this data, we provide no guarantee as to the accuracy or completeness of this data and Willis Towers Watson and its affiliates and their respective directors, officers and employees accept no responsibility and will not be liable for any errors or misrepresentations in the data made by any third party.

This material may not be reproduced or distributed to any other party, whether in whole or in part, without Willis Towers Watson’s prior written permission, except as may be required by law. In the absence of our express written agreement to the contrary, Willis Towers Watson and its affiliates and their respective directors, officers and employees accept no responsibility and will not be liable for any consequences howsoever arising from any use of or reliance on this material or the opinions we have expressed.

Towers Watson Limited (trading as Willis Towers Watson) is authorised and regulated by the Financial Conduct Authority.

Authors

Ian Aley
Head of Transactions

Shelly Beard
Senior Director of Transactions

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