Two of the UK’s largest insurers have announced buy-ins and buyout deals, continuing growth in the bulk annuity market that will likely see a record volume of transactions.
Legal & General (L&G) completed a £129m buy-in with the Uniac Pension Fund, part of Unilever, as demand from schemes continues amid favourable market conditions.
Rothesay Life meanwhile agreed a full buyout with the UK Panasonic Pension Scheme, but the total size of the transaction for the 600-member scheme was not disclosed.
Both deals come amid predictions of unprecedented transaction levels, with market activity by the end of June 2014 close to exceeding 2013’s £7bn in transactions.
Rothesay said its business pipeline for the remainder of the year was full of buyout deals.
Likely factors include the general increase in scheme funding and the adoption of insurance company-matching investment strategies since 2008, when the current record of £8bn in transactions was set.
Despite recent rising price volatility in the bulk annuity market, consultancy Aon Hewitt’s latest report said schemes holding UK Gilts would have been able to insure pensioner members at little to no cost.
Likewise, Aon Hewitt added, despite annuity prices rising in absolute value terms, schemes with bonds and liability-driven investments (LDI) would have suffered “modest change” in the purchasing power of assets.
Predications were made of the 2014 bulk annuity market to reach £10bn, and even with the expected slowdown in Q4, deals seen so far make this likely.
Consultancy LCP said with the £6.5bn seen in the first half, an excess of £1bn worth of bulk annuity transactions was likely for the final three months.
Alongside pension scheme demand, insurers’ growing appetite for bulk annuity deals continues.
L&G recently told IPE the insurer had not seen any pension scheme come to market for which it did not have a desire to quote.
Michael Abramson, head of strategic business for bulk annuities at L&G, said the market “was not finished yet”, referring to Q4 transaction levels.
He said the insurance market had a growing appetite for longevity risk and asset risks associated with bulk annuity deals, mainly long-term credit.
However, while pricing continued in schemes’ favour, the market was at risk of seeing demand exceeding supply, he said.
“A sudden spike in demand, could see capacity limited by one of either appetite for longevity or asset risk,” Abramson said.
In a recent report, KPMG said it expected the bulk annuity market to reach £20bn a year by 2020.
A significant factor behind the growth was insurers’ increasing appetite for longevity exposure after changes in this year’s Budget potentially reduced the size of the individual annuity market.
Tom Seechnaran, KMPG’s director of pensions insurance, said: “The supply of insurance providers is increasing as both new entrants and existing insurers seek to write more business following Budget’s reforms.
“We envisage that these market conditions will drive year-on-year increases in buyout volumes.”
Earlier this year, IPE reported Aviva was looking to expand its bulk annuity operations and fellow insurer LV= enter the market in direct response to the Budget reforms.