Bulk Annuity Transfers Reach £21bn In 2016

15 May 2017

  • Temporary capacity constraints ahead due to legacy annuity books of defunct insurers
  • Largest deals in 2016 were ICI £2.6bn over 5 buy-ins (with L&G and Scottish Widows), Vickers £1.1bn buyout (with L&G) and Phoenix £1.2bn buy-in (self-insured with Phoenix).
  • Largest reported deal in Q1 2017: £250m buy-in by Cancer Research with Canada Life

Over £10bn of bulk annuities were purchased by pension schemes in 2016 as sponsors and trustees became increasingly determined to offload their risk, according to JLT Employee Benefits’ latest Buyout Market Watch report. On top of the bulk annuities written with pension schemes, insurers took on a further £11bn of back-book annuity transfers from closed insurers over 2016. This puts the total size of annuity liability bulk transfers during 2016 at a little over £21bn. In the first quarter of 2017, publicised deals were worth £1bn (see tables below).

2016 was sadly marked by Prudential’s withdrawal from the bulk annuity market. On the positive side, Scottish Widows and Canada Life have stepped into the market to help maintain and expand the overall capacity.

The large legacy annuity books of circa £50bn that have now been stranded in some closed insurers, however, give cause for concern. This legacy liability could cause capacity problems if a large proportion were to transfer too quickly to the currently active insurers, on top of the £11bn of legacy annuities that we have already seen transferred in this way during 2016.

Defined benefit pension scheme deficits continue to be a significant burden, particularly in a scenario where the financial strength of an employer is reduced, evidenced by BHS and the British Steel Pensions Scheme. In the event of a sponsor’s insolvency, or a scheme abandonment, the pension scheme will sooner or later want to try and purchase a bulk annuity policy providing more than the Pension Protection Fund (PPF) level of benefits. These are difficult transactions with highly technical annuitisation and winding-up processes, needing specialist skills.

Harry Harper, Head of Buyouts at JLT Employee Benefits, comments: “Risk transfers are occurring at a fast pace and the bulk annuity market seems be coping robustly with them. Looking forward, pressure could come from legacy annuity books of closed insurers competing with new deals. Preparedness will be paramount in ensuring a scheme’s ability to transact at the right price.”

“New technology and the recent automation and standardisation of the layout of the data provided to insurers have resulted in a streamlined process to monitor prices over a long period of time, with the capability of transacting rapidly when conditions are affordable. For schemes that have already removed interest and inflation risk, the correct time could be now.”

publicised buyout deals 2017

bulk annuity and longevity swap market volumes since 2005 chart

ENQUIRIES:

JLT

Corinne Gladstone, PR Manager, JLT Group | T: +44 (0)20 7895 7705 | M: +44 (0)7799 340658 | E: corinne_gladstone@jltgroup.com

NOTES TO EDITORS:

About Jardine Lloyd Thompson

Jardine Lloyd Thompson is one of the world’s leading providers of insurance, reinsurance and employee benefits related advice, brokerage and associated services. JLT’s client proposition is built upon its deep specialist knowledge, client advocacy, tailored advice and service excellence.

JLT is quoted on the London Stock Exchange and owns offices in 41 countries with more than 10,600 employees. Supported by the JLT International Network, it offers risk management and employee benefit solutions in 135 countries.

For further information about JLT, please visit our website www.jlt.com.

About JLT Employee Benefits

JLT Employee Benefits is one of the UK’s leading employee benefit providers offering a wide range of benefit and pension services, including administration, actuarial, pension and investment consultancy, wealth management, flexible benefits, healthcare, benefit communication and financial education.

JLT Employee Benefits employs over 2,200 professionals and in 2016 had revenues of £160 m in UK & Ireland.

Pensions and employee benefits companies within the JLT Employee Benefits group of companies include: JLT Benefit Solutions Ltd, Profund Solutions Limited, JLT Wealth Management Limited, JLT Investment Management Limited and Independent Trustee Services Limited. JLT Employee Benefits is part of Jardine Lloyd Thompson Group plc. www.jlteb.com
Corinne Gladstone
PR Manager