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Record breaking start to
2018 with £21.8bn of longevity risk transfer

9 August 2018

Analysis by Lane Clark & Peacock (LCP) shows that a record £7.8bn of pension buy-ins and buy-outs (also known as bulk annuities) were completed by UK pension plans in the first six months of 2018 (H1 2017: £5.1bn). This makes the first half of 2018 the busiest ever start to the year, surpassing the record £6.9bn in H1 2014.   

Total longevity risk transfer in H1 2018 reached a record £21.8bn, including a £2bn longevity swap by National Grid in May and the £12bn annuity “back-book” transfer from Prudential to Rothesay Life in March. This exceeded the previous record of £11.9bn set in H1 2014.

LCP’s analysis of insurer data for H1 2018 reveals:

  • Pension Insurance Corporation (PIC) wrote the largest volume in H1 2018 at £3.3bn (a 42% market share) retaining their leading position from 2017. Aviva followed with a 20% market share writing £1.5bn in H1 2018.  Both insurers’ H1 2018 volumes are only slightly short of their 2017 full-year totals (PIC £3.7bn and Aviva £2.0bn).  
  • Scottish Widows has significantly increased its volumes in 2018, increasing their market share to 14% (£1.1bn) in H1 2018, putting them in third place overall, up from 5% (£0.6bn) for 2017 full year.
  • The largest volume insured by a single scheme in H1 2018 was £1.4bn by the M&S Pension Scheme, split across two buy-ins with Aviva and Phoenix Life. This was Phoenix Life’s first open-market transaction, following a pensioner buy-in with their own scheme in 2016. The largest single transaction was the £1.3bn pensioner buy-in by the Siemens Benefit Scheme with PIC.

Charlie Finch, partner at LCP commented:

 “At the start of 2018 we predicted a record year for buy-ins and buy-outs on the back of improved funding positions.  Combined with arguably the best insurer pricing in 10 years, 2018 has indeed got off to a flying start breaking all previous records for half year volumes.

“Buy-ins and buy-outs are now an established risk management tool for large blue chip companies. The pension plans of Heathrow airport, Littlewoods, Marks & Spencer and Siemens have all completed large pensioner buy-ins in 2018; Toshiba and PA Consulting have both insured UK pension plans in full. I would encourage all pension plans to obtain an assessment of their buy-out position, building in the latest improvements, as many are finding they are in a much better position than they realise.”

“Looking forward, I have little doubt that 2018 will set a new record of over £15bn of buy-ins and buy-outs for the first time.  The challenge for insurers is scaling up to process the higher number of transactions and to source the greater volume of assets necessary to continue to offer pricing at current attractive levels.  Pension plans should step back and consider their strategy for approaching the market. 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.”

Data and statistics

Buy-in/ buy-out volumes in the UK by insurer:

Insurer

H1 2018 (£m)

H1 2018 share

H1 2017 (£m)

Total 2017 (£m)

2017 share (rank)

1.    PIC

3,257

42%

1,875

3,654

30% (1)

2.    Aviva

1,539

20%

326

2,045

17% (3)

3.   Scottish Widows

1,105

14%

405

645

5% (6)

4.    JUST

718

9%

295

998

8% (4)

5.    Legal & General

507

7%

1,504

3,405

28% (2)

6.    Phoenix Life

470

6%

0

0

0% (8)

7.    Rothesay Life

170

2%

405

960

8% (5)

8.    Canada Life

0

0%

276

544

4% (7)

       Total

7,766

100%

5,086

12,251

100%

Source: Insurance company data. 

Only business with a UK pension plan is included.  The table therefore excludes the £12bn transfer of annuities from Prudential to Rothesay Life in March 2018.

The chart below shows the volume of buy-ins and buy-outs since 2007 split by half year.


Buy-ins and buy-outs over £100m in H1 2018

Pension scheme name

Size £m

Insurer

Type of transaction

Date

LCP lead adviser

Siemens

1,265

PIC

Pensioner buy-in

Jun-18

 

M&S

925

Aviva

Pensioner buy-in

Mar-18

Littlewoods

880

Scottish Widows

Pensioner buy-in

May-18

PA Consulting

855

PIC

Full buy-out

Jun-18

Trustee-side

M&S

470

Phoenix Life

Pensioner buy-in

Mar-18

BAA (Heathrow Airport)

325

Legal & General

Pensioner buy-in

May-18

 

Undisclosed

275

PIC

Pensioner buy-in

Apr-18

 

Kingfisher

210

PIC

Pensioner buy-in

Apr-18

 

Undisclosed

200 PIC

Pensioner buy-in

Apr-18

Undisclosed

200

Aviva

Full buy-out

Jun-18

Undisclosed

195

PIC

Pensioner buy-in

Jun-18

 

Toshiba

170

Rothesay Life

Full buy-out

Apr-18

 

Undisclosed

160

Aviva

Deferred buy-out

Jun-18

 

Undisclosed

100

Scottish Widows

Pensioner buy-in

Jan-18

 

Source: Insurance company data for H1 2018 and public announcements.

Note: This table does not include transactions by Just and Legal & General other than those in the public domain.

 

Further details of previous years can be found in LCP’s De-risking Report 2018, “Buy-ins, buy-outs and longevity swaps”, available here www.lcp.uk.com/deriskingreport.