Solvency II not expected to diminish appetites for deals
2015 was relatively quiet for the bulk-annuity and longevity-hedging markets, compared to 2014, but appetite from both pension schemes and insurers picked up significantly in the latter part according to Willis Towers Watson. In the last quarter of 2015, the company says over £5bn of liabilities were secured with insurers, either via longevity hedges or bulk annuities. In November and December alone, the company helped its clients secure eight separate bulk annuities, covering over £650m of liabilities.
According to the company, 2016 will start relatively slowly for the bulk-annuity and longevity-hedging markets but will pick up around spring.
Shelly Beard, senior consultant in Willis Towers Watson's de-risking team, said:
"While most insurers spent much of 2015 preparing for Solvency II, final sign-off on reserving requirements was not provided by the Prudential Regulation Authority until December 2015. This means that as insurers start to submit responses to quotation processes in early 2016, there will inevitably be a period of price discovery for both pension schemes and insurers, as the market looks to understand how different players have been affected by the new reserving rules.
"Our current understanding is that, overall, there will be very little impact on buy-in pricing for pensioners, but pricing for non-pensioners could increase by up to 5%, although this will vary across insurers. However, we do not expect this to limit the growth of the market in 2016 as, to date, non-pensioners have only represented a small part of bulk annuities secured."
According to Willis Towers Watson estimates, there are likely to be longevity-hedging deals covering over £20bn of liabilities in 2016. In the bulk-annuity market, allowing for the bedding-in of Solvency II, the company expects continued growth during the year with around £12bn of liabilities transferring to insurers. This trend is be supported by the unprecedented number of Willis Towers Watson pension scheme clients currently aiming to secure and implement transactions. The company also predicts increased competition in the bulk-annuity market during 2016.
Shelly Beard said: "Two new insurers completed deals in the second half of 2015 in the small- to medium-sized transaction market and we expect there are several other companies closely monitoring the marketplace with a view to developing bulk-annuity propositions. In addition, there is currently significant interest in the UK bulk-annuity market from potential suppliers of capital, which will allow both existing providers and new entrants to continue to write sizeable new business. This can only be a positive development from pension schemes' perspectives, with new entrants driving prices down and innovation up."
About Willis Towers Watson
Willis Towers Watson (NASDAQ: WLTW ) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 39,000 employees in more than 120 countries. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas — the dynamic formula that drives business performance. Together, we unlock potential. Learn more at willistowerswatson.com.