Insights: Mercer Looks At 2019 Risk Transfer Market

Some comment and insights just in from Mercer;

Key figures on 2019 risk transfer market:

–          Total bulk annuities deals for 2019 is confirmed to be 151 deals with total premiums of £43.8bn, compared to 2018 which saw 162 deals at £24.2bn (and the previous highest volume of £13.2bn in 2014)

–          An increase in mega deals was the key driver for the record new business volumes, with 11 transactions above £1bn

–          Small schemes were still able to achieve transactions, with 105 deals below £100m, of which 39 were sub £10m, although the relative number of smaller deals declined

–          Longevity swap activity was dominated by the £7bn HSBC-PICA deal, the second largest swap for a UK scheme, compared to c£3bn of longevity swaps in 2018

Commenting on the 2019 UK record bulk annuity figures Mercer’s Head of Risk Transfer, Andrew Ward, said: “A near doubling of buyout volumes in a year demonstrates the strong commitment on the part of DB schemes to taking risk off the table. However, whether 2020 will end on a similar note is now harder to predict than a few weeks ago. At the moment we are waiting to see what the fall-out of Covid-19 might be. There are a number of conflicting impacts; many schemes will have seen a fall in funding level, which makes risk transfer more challenging than before. Others may be reviewing the merits of protecting against longevity risk at the current time.

“However, schemes that are significantly de-risked with interest rate and inflation hedged might actually have an improved buy-out funding position due to increasing credit spreads starting to impact quotes from insurers. As with any source of market volatility, there will be opportunity for schemes who are well positioned and well prepared. ”

Commenting on the sustained levels of activity at the smaller end of the market Principal in Mercer’s Risk Transfer team, Ruth Ward, added: “Despite the general perception that the focus on mega deals is taking attention and resource away from the smaller end of the market, we are continuing to see a high level of activity here. It is encouraging that many insurers are putting dedicated focus on the smaller end of the market by streamlining their quotation processes to allow them to continue to transact these.  However, it is crucial to prepare properly and present the scheme in the right way.”