The bulk annuity market is set to return to ‘normal’ levels in 2020 with £30bn worth of deals expected over the course of the year, according to Willis Towers Watson. This is down from an anticipated £40bn in 2019.
Next year should see a more balanced market, allowing greater traction for smaller schemes and fewer ‘mega deals’. Macro conditions could drive market volatility, and this may lead to opportunities for attractive pricing.
Willis Towers Watson expects a particularly busy start to 2020, as those schemes who weren’t able to secure deals in 2019 seek to lock down risk.
The longevity swap market is potentially due for a record year of hedging, breaking the record set in 2014, when £25bn was hedged. This will reflect schemes looking to lock in current life expectancy assumptions, which are the lowest they have been in more than a decade.
2019 in review
- By the end of 2019, the bulk annuity market will have reached £40bn worth of deals, surpassing even the most optimistic predictions from 2018, which had itself been a record year.
- This year, around 100 deals contributed to the total of £40bn, which was a third less than the 162 deals in 2018, deals totalled £24bn.
- The increase in multi-billion-pound deals dominating the market has been to the detriment of smaller pension schemes, which struggled to get traction.
- The largest deal was £4.7bn for the GEC 1972 Plan, and a total of nine deals were over £1bn. Schemes sponsored by National Grid, Asda and British American Tobacco all secured large deals.
- The volume of longevity swaps this year met Willis Towers Watson predictions of £10bn, following a relatively quiet few years in the longevity hedging market (2018: £4.7bn, 2017: £6.4bn).
- This figure was made up in large part by the pioneering £7bn deal for the HSBC Bank (UK) Pension Scheme through a Bermuda captive.
Ian Aley, Head of Willis Towers Watson’s Transactions team, said:
“This year has seen a remarkable number of mega deals, so although we expect a reduction in the number of large deals through 2020, there is certainly lots of ‘pent up’ demand in both the longevity swap and bulk annuity markets.
“Larger schemes should consider partnering with insurers to find optimal assets to match their liabilities. There is great opportunity for smaller schemes to find more traction in the market if they can focus on streamlining processes, with good preparation, governance and pre-agreed legal terms.”