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The Actuary The magazine of the Institute & Faculty of Actuaries

Longevity risk transfers hit record-breaking highs in first half of 2018

The first six months of this year saw an unprecedented £21.8bn in longevity risk transfers undertaken for UK pensions plans, shattering the £11.8bn record set in the first half of 2014.

£11.8bn record shattered in first six months of 2018 ©iStock
£11.8bn record shattered in first six months of 2018 ©iStock

That is according to analysis by Lane Clark & Peacock (LCP), which also found a record £7.8bn in bulk annuities completed, making the first half to 2018 the busiest start to a year ever.

The £12bn annuity “back-door” transfer from Prudential to Rothesay Life in March was one of the headline transactions, as was a £2bn longevity swap by National Grid in May.

LCP partner, Charlie Finch, said the flying start to the year was thanks to a combination of improved funding positions and possibly the best insurer pricing seen in a decade.

“Buy-ins and buy-outs are now an established risk management tool for large blue chip companies,” he continued.

“I would encourage all pension plans to obtain an assessment of their buy-out position, as many are finding they are in a much better position than they realise.”

Pension Insurance Corporation (PIC) wrote £3.3bn in bulk annuities in the first half of 2018, obtaining a 42% market share and retaining its leading position from the previous year.

Aviva was in second place with a 20% market share after writing £1.5bn, while Scottish Widows moved into third position, increasing its volumes to £1.1bn and market share to 14%.

The largest volume insured by a single scheme was £1.4bn by the M&S Pension Scheme, split across two buy-ins with Aviva and Phoenix Life. The largest single transaction was a £1.3bn buy-in by the Siemens Benefit Scheme with PIC.

Finch said he was confident that 2018 would set a new record of over £15bn for buy-ins and buy-outs, but warned that insurers may struggle to offer pricing at current levels.

“The challenge is scaling up to process the higher number of transactions and to source the greater volume of assets necessary,” he said.  “Pension plans should consider their strategy.

“We already have a queue of transactions targeting 2019 – I am confident that there will continue to be attractive opportunities, but in a busier market, they may be harder to access.” 

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