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UK bulk annuities set for record year as 2018 total hits £20bn

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The UK’s bulk annuity market saw its busiest first half ever between January and June this year, with £20bn (€22.4bn) of deals being struck in the period, according to consultancy Aon.

The firm said 2018 was on track to become a record year for the overall value of transactions, even higher than the £30bn total it predicted back in December.

John Baines, partner in Aon’s risk settlement team, said: “We fully expect the surge of deals will continue, with the structure and size of deals breaking new barriers during 2018.”

This year several big bulk annuity deals have been completed, including a £1.3bn pensioner buy-in for Siemens, and two buy-ins for high street chain Marks & Spencer totalling £1.4bn. In addition, PA Consulting completed the largest buyout of the year so far at £850m, backed by specialist insurer Pension Insurance Corporation.

The consultancy said it continued to see “attractive pricing” on recently-completed auctions, with favourable market conditions remaining supportive of annuities offered at a yield substantially above gilt values.

“However, there is a possibility of prices increasing if the high demand is sustained through to the autumn,” Baines warned. 

A new wave of pension schemes had been attracted to the busy market, he said, with the combination of improved insurance pricing and better scheme funding leading to overall improved solvency positions.

“We expect this trend to continue and the focus to sharpen on achieving full buyout,” he said.

There was still a worry about potential capacity constraints in the insurance sector, Baines added, but for now access to capital and willing takers for longevity risk were not posing a problem.

“Even so, access to high-yielding illiquid assets to drive competitive pricing, and available as well as experienced resource on the pricing teams, will remain key issues,” Baines said.

Insurers were also looking at the implications of the Prudential Regulatory Authority’s recent consultation in relation to equity release assets and the associated required capital reserves.

“In other words, we have a market where insurers can be relatively choosy – and, as we have always said, it will therefore be the well-prepared schemes that are likely to experience the best outcomes,” he said.

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