Press Release

2019 UK de-risking predictions show continued appetite for bulk annuity ‘mega deals’ with a resulting challenge for smaller schemes

2018 saw unprecedented large-scale bulk annuity transactions, which is predicted to continue in 2019, but how are small schemes faring in their wake? The potential for asset shortages, buyout alternative innovation and macro headwinds are all likely to sway the wider de-risking market in the year ahead.

January 8, 2019
| United Kingdom

LONDON, 8 January 2019 – Four factors are set to determine what schemes, from large to small, need to consider as they weigh up their de-risking options for the year ahead, according to Willis Towers Watson’s 2019 de-risking report. Last year saw unprecedented bulk annuity transactions activity, with significantly more than £20 billion of bulk annuities transacted, and this ongoing trend is likely to impact the market in 2019.

The small scheme dilemma

As the bulk annuity ‘mega deal’ trend looks set to continue, smaller schemes are potentially at risk of missing out on attractive pricing as insurers prioritise resources to large-scale, high value deals. Smaller schemes will need to work hard to demonstrate ease of doing business – this includes proving their is commitment to the transaction from both the trustee and the sponsor, articulating a clear pricing target to the market and providing clean and complete data. Without these elements in place, large deals will dominate.

Innovation in alternatives to buyout

Credible alternatives to a full scheme buyout are likely to cement their footprint in the market this year – three examples include:

  • Commercial consolidators – a DB master trust where the employer covenant is replaced by a capital buffer
  • Non-traditional insurance products – insurers currently providing bulk annuities, innovating to improve affordability for schemes
  • Fiduciary asset management – delegation of investment implementation to a professional provider.

As schemes have more choice than ever on their preferred de-risking solution, they should think carefully about the right destination given their funding plan and sponsor covenant.

High yield asset supply and demand imbalance

Access to high yielding income generating assets is crucial for insurers’ ability to price bulk annuity deals attractively. During 2018, as competition for large-scale bulk annuity deals increased, we saw insurers begin to struggle to access these much-coveted assets. As the market grows further in 2019, this trend will further dictate insurers’ bulk annuity strategies in the year ahead, and insurers may need to innovate to maintain attractive pricing.

Macro headwinds – Brexit and GMP equalisation

Brexit and GMP equalisation are key macro headwinds which may affect deal activity in 2019.  Pension scheme funding levels are largely resistant to investment markets, any market volatility may present opportunities for those poised to transact bulk annuities, and any exchange rate movements may improve buyout affordability for overseas sponsors. 

Commenting on the trends, Shelly Beard, Senior Director, said: “2018 was a remarkable year for bulk annuities and de-risking innovation, and we expect to see more of this growth in 2019. There are, however, several significant factors at play which could sway the direction of travel. Whether that’s the ‘mega deal’ market impacting smaller schemes, macro headwinds or innovative de-risking solutions, trustees and sponsors need to ensure their de-risking strategy is firmly on the agenda in the year ahead.”

About Willis Towers Watson’s De-Risking Report 2019

Willis Towers Watson’s 2019 De-risking Report is intended to help those pension schemes who are considering hedging through a bulk annuity or a longevity swap understand the current landscape of the insurance industry. Our team of market experts have set out the key themes which have emerged during the past year and the opportunities currently available to schemes, as well as setting out our views on how we expect the landscape to develop over the coming months.

About Willis Towers Watson

Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has over 40,000 employees serving more than 140 countries. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas — the dynamic formula that drives business performance. Together, we unlock potential.