UKJan 4 2017

Pension liability sell-off forecast in 2017

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Pension liability sell-off forecast in 2017

UK companies are expected to sell their pension liabilities to insurers over 2017, according to research from Willis Towers Watson.

Greater engagement from smaller schemes and innovation creating improved buy-in affordability are some of the key developments expected to feature in the de-risking market in the course of the year, according to the broker.

The firm has predicted over £30bn of liabilities will be insured in 2017, through buy-ins, buyouts and longevity swaps.

This would be a near-return to the levels of activity observed in 2014, when £39bn of liabilities were sold.

The year-on-year figure has been declining since then, standing at £18bn in 2015, and £11bn in 2016. 

According to Willis Towers Watson, this happened as participants allowed for the bedding-in of Solvency II, and back books distracted some market participants from new pensions transactions.

Additionally, events such as the European Union referendum caused uncertainty in the market.

Overall, £9bn of liabilities were hedged through via around 100 bulk annuities in 2016, of which £4bn took place in the fourth quarter, whilst only £2bn of longevity risk was passed by pension schemes into the reinsurance market.  

This compares to £12.3bn across 175 bulk annuity deals and £6bn of longevity swaps in 2015.

An overall increase in the regularity and volume of longevity risk being passed into the reinsurance market is allowing smaller schemes to be more active in the longevity hedging market, as they benefit from big scheme pricing, making longevity hedging programmes more attractive, according to Willis Towers Watson.

For schemes looking to transact buy-ins and buyouts in 2017, Willis Towers Watson  identified the continuing competition from back book business, with a number of insurers looking to transfer away their historic bulk and individual annuity business.

Aegon sold two thirds of its UK annuity portfolio to Rothesay Life back in April in order to divert more resources to its adviser platform, and in May Legal & General bought a £3bn annuity portfolio from Aegon.

Shelly Beard, director in Willis Towers Watson’s de-risking team, said: “2016 was very much a year for taking stock, with uncertainty following the UK’s EU referendum certainly subduing the overall level of activity taking place.

"Insurers have focused on their Solvency II capital positions, back book transactions and building up their pricing team capabilities.  Relative to the preceding 18 months, the second half of 2016 saw a marked increase in the value available in the bulk annuity market.

"Consequently, providers are entering the new year with strong pipelines and several deals expected to trade in January, and more of our clients are approaching the market than ever, so we expect 2017 to start from a very healthy position in terms of appetite and deal pipelines.”

ruth.gillbe@ft.com