Bulk annuity market bounces back to life, Q3 sees first rise in over a year, with both value and volume up signficantly. The outlook is positive with “several large” deals in the pipeline.
The insured bulk annuity market for defined benefit (DB) pension schemes is showing signs of a sustainable revival, following four quarters of decline. The third quarter of 2009 saw the first growth for more than a year, with the value of deals growing 58%, according to research from Aon Consulting.
Aon Consulting’s Q3 bulk annuity survey is based on information provided by leading insurers. Its key findings are:
- Value of business placed in Q3 2009 rose 58% to £958m, compared to £607m in Q2;
- Average value per scheme placed up from £15 million to approximately £20 million ;
- Number of cases placed up 20% to 48, compared to 40 in the previous quarter;
- Number of quotations provided – an indication of potential future business levels – up, with 303 cases quoted in Q3 compared to 275 in Q2. The total value of schemes quoted up to £31 billion from £24 billion;
- The market remains competitive, with eight insurers writing business in the quarter;
- The largest case in the public domain during Q3 2009 was the buyin of a proportion of the MNOPF (Merchant Navy Officers Pension Fund) at £500m – the largest deal this year.
Commenting on the latest data and market outlook, Paul Belok, principal & actuary at Aon Consulting, said: “There are signs that greater stability in the investment markets is encouraging pension schemes to re-examine the bulk annuity market. Pricing remains attractive relative to scheme funding assumptions, particularly for pensioners. This means that longevity and investment risks can often be removed for this group through annuity purchase without the need for additional funding from the employer.
“The MNOPF case is one of only a handful of deals over £100m that have transacted this year, compared to 16 in 2008 (two of which exceeded £1bn) but indications are that there are several large deals in the pipeline, some of which may well conclude before the end of the year.
“As schemes increasingly focus on developing de-risking road maps, we anticipate that the bulk annuity market will continue to be a major part of the armoury that will be used. Ultimately, full buyout is likely to be the goal of many schemes, and approaching this on a phased basis will make sense for many – the trick is to ensure that the scheme is monitoring the market to optimise timing, and that pre-planning is carried out so that the transaction can proceed efficiently when the time is right.
“In a related area, Q3 has also seen the first transactions of longevity swaps by pension schemes, and going forward we expect there to be further interest in this market, particularly from larger schemes.”
