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De-risking report 2020

Soaring to great heights

Pensions Corporate Consulting|Pensions Risk Solutions
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By Ian Aley | January 20, 2020

Welcome to Willis Towers Watson’s 2020 de-risking report in which our experts look back at the record-breaking activity of 2019 and predict key themes in the longevity hedging and bulk annuity market over the next year.

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Our Credentials

Size and volume

  • Experienced adviser on transactions ranging in size from £1 million to £16 billion
  • Advised on the first buy-in transaction in 1999. We have subsequently advised this client on four further deals
  • A team with experience of over 800 transactions, including leading transactions in 2019 covering more than £12 billion of liabilities
  • Advised more than 20 schemes that have put in place multiple buy-ins, using both umbrella contracts and open-market approaches
  • Leading adviser to insurers on annuity portfolio sale transactions
  • Advised on over half of all public domain longevity swaps including the two largest longevity risk transfers ever: the BT Pension Scheme and the HSBC (UK) Bank Pension Scheme longevity swaps

Innovation

  • We have an unrivalled history of leading innovations and embracing new ideas. For example we were the lead adviser on:
    • The first collateralised buy-in
    • The first all-risks buyout
    • The first captive buy-in
    • The first software tracking system used by an insurer to track live pricing
    • The first umbrella contract for repeat buy-in transactions
    • The first streamlined longevity swap with Legal & General
    • The first novation of a longevity swap
    • The first longevity swap using a captive, which was a Guernsey-based cell. We subsequently led the first longevity swap using a Bermudan captive
  • Our Longevity Direct offering was the first ready-made vehicle for pension schemes to access the longevity reinsurance market
  • 135 pension schemes and six insurers/reinsurers use Willis Towers Watson’s market-leading Postcode Mortality Tool

Client-focused solutions

  • Streamlined approach that includes pre-negotiated contract terms for cost-efficient and quick transactions
  • Strong relationships with the provider market, leading to the best solutions for our clients
  • The only adviser to have led public domain transactions using all the available longevity hedging structures
  • Longevity risk is integrated within the investment risk framework to enable active decisions
  • Settlement is a key part of our fiduciary investment offering and at the heart of our strategic advice

2019 was a landmark year on many counts. In what was the 10th anniversary of the first longevity swap and the 20th anniversary of the first buy-in, we have seen the de-risking markets hitting the headlines. The driver was not only unprecedented levels of bulk annuity transactions, with around £41 billion of liabilities insured, but also the size of the liabilities hedged. We saw the largest buy-in to date when telent and the Trustees of the GEC 1972 Plan entered into a £4.7 billion buy-in with Rothesay Life. We also saw the second largest longevity swap ever completed when the HSBC Bank (UK) Pension Scheme entered into a £7 billion longevity swap with Prudential Insurance Company of America (see page 13 in the report for a case study). In the next few pages Katherine Gilder considers the key themes from 2019, and Suzanne Vaughan provides her tips for schemes looking to approach the market in 2020.

Outside pensions, the UK political environment dominated the headlines in 2019. The unexpected dissolving of parliament at the start of November led to delays in the agreement of a regulatory regime for the commercial consolidator market and also for the Pension Schemes Bill, which required trustees to have a documented strategy for ensuring long-term provision of scheme benefits. Costas Yiasoumi considers what the Bill means for the insurance market, and Tom Ashworth considers what a new regulatory regime might mean for the commercial consolidation market.

What else can we expect from 2020? In chapter 3, two of Willis Towers Watson’s mortality thought leaders, Cobus Daneel and Jamie Jones, consider recent trends in mortality and what this means for the longevity de-risking market. Sadie Scaife also shares her views on what we might expect from the bulk annuity and longevity swap markets in 2020. 

A question we are often asked is about the strength of insurers as counterparties to a transaction. In chapter 5 (page 19) in Will Griffiths’ interview with Adolfo Aponte of Lincoln Pensions, Adolfo shares his views on how covenant advice can add value to the bulk annuity process.

Finally, no pensions publication would be complete without a GMP article. A recent Wills Towers Watson survey revealed GMP issues as the joint-top current issue for pension scheme decision makers, and Lucy Wilson shares the latest insurance market views on GMP equalisation.

At Willis Towers Watson our team brings together experience and expertise across pension consulting, insurance, liability management exercises and project management to help our clients find the right solutions for them. We work alongside a wide range of clients as their strategic de-risking adviser, helping them to identify and plan their end-game strategy and the steps they can take along the way.

We would welcome the chance to discuss further with you how you can take advantage of opportunities in this market for your scheme.

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Table of Contents


  1. 01

    Chapter One - Looking back at 2019

    Katherine Gilder | January 13, 2020

    2019 was another record-breaking year in the bulk annuity and longevity hedging market, with volumes considerably in excess of those predicted at the start of the year. Katherine Gilder considers the trends in 2019 and what this could mean for 2020.


  2. 02

    Chapter Two - The Pension Schemes Bill and what this means for the insurance market

    Costas Yiasoumi | January 13, 2020

    The upcoming requirement to establish a long-term funding and investment strategy will lead to an increased focus on longevity risk management through bulk annuities and longevity swaps. Costas Yiasoumi explains why.


  3. 03

    Chapter Three - Spotlight on: mortality trends

    Cobus Daneel and Jamie Jones | January 13, 2020

    Cobus Daneel and Jamie Jones are members of Willis Towers Watson’s team of thought leaders on mortality and longevity. In this article they consider recent trends in longevity and how this impacts on schemes looking to hedge longevity risk.


  4. 04

    Chapter Four - Tips for a well-run process

    Suzanne Vaughan | January 13, 2020

    Suzanne Vaughan reflects on the key lessons of 2019 that schemes can leverage to ensure a well-run process.


  5. 05

    Chapter Five - Interview with Lincoln Pensions

    Will Griffiths and Adolfo Aponte | January 13, 2020

    In this interview, Will Griffiths talks to Adolfo Aponte about another busy year for Lincoln Pensions in the bulk annuity market and where Adolfo thinks insurer covenant advice can add real value.


  6. 06

    Chapter Six - Spotlight on: GMP equalisation – insurer views

    Lucy Wilson | January 13, 2020

    Lucy Wilson explores insurers’ latest views on the interaction of GMP equalisation with bulk annuities.


  7. 07

    Chapter Seven - Consolidation: one year on

    Tom Ashworth | January 13, 2020

    Tom Ashworth takes a look at some of the benefits of commercial consolidation, where it may be a viable option for a scheme, the circumstances where it may not be appropriate and the reasons why or why not.


  8. 08

    Chapter Eight - Where next for the longevity de-risking market?

    Sadie Scaife | January 13, 2020

    Sadie Scaife predicts what we can expect from the longevity hedging and bulk annuity markets in 2020.


Next Chapter - Looking back at 2019

Author

Ian Aley
Head of Transactions

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