Bulk annuity market breaks yet another record with £17bn of first half deals

James Phillips reports...

Around £17.5bn of buy-ins and buyouts were transacted in the first half of the year as bulk annuity market records continued to tumble.

With all insurers having published their results to June, the first six months saw the highest volume of deals in any first half since records began in 2007.

The £17.5bn figure compares to just £7.7bn recorded between January and June last year, the next largest first half, as well as the £16.5bn recorded in the second half of last year, the busiest half-year period until now.

With another £1.1bn of deals having been confirmed as transacted since the start of July, the market is heading towards another record-breaking year. The current record was only set last year, when the market secured £24.2bn of liabilities.

In fact, the £17.5bn figure for the first half of this year has seen a greater amount of liabilities insured than in any year other than 2018. And the 12-month period between July last year and June this year was also the busiest ever 12-month period, with around £34bn of liabilities insured.

LCP partner Charlie Finch said it had been a “monstrous first half” and the industry was entering a “new paradigm”.

“The market has just completely shifted gear,” he said. “In terms of looking forwards, we are expecting to carry on at this pace. We’re predicting that this year will also be over £30bn.”

LCP said it had advised on around £10bn of transactions this year, and expected the pipeline to continue.

“What is driving this is the funding positions of UK pension schemes which have improved, particularly the buyout position,” Finch continued. “That’s partly driven by assets performing well, and partly by insurer pricing being very competitive, but lots of it has been driven by longevity.

“We’ve seen material reductions in liabilities as the longevity projections get revised for the latest data, and that’s pushed up affordability considerably. There’s a lot of schemes out there who have realised they can actually de-risk faster than previously thought.”

However, there may be a spanner in the works due to significant falls in gilt and corporate bond yields over the last fortnight and continuing Brexit volatility.

Legal & General (L&G) has led the market this year, with £6.3bn of deals transacted in the first half, and another £923m deal completed since. Pension Insurance Corporation and Phoenix Life followed with £6bn and £1.6bn respectively.

In addition, a mammoth £7bn longevity swap between the HSBC Bank (UK) Pension Scheme and Prudential Insurance Company of America brings total pension risk transferred to £25.7bn this year. Just £2.3bn of longevity risk was confirmed as hedged last year.