Investment - Articles - Bulk annuities has scope to use more market capacity

 The bulk annuity providers did not write substantial new insurance company back-book deals in the year, in contrast to 2016 (when Rothesay Life and L&G absorbed £9.5bn of back-books) and now in 2018 (with Rothesay Life taking on £12bn of Prudential back-book business). For 2018, the overall volume of bulk business written by the market is on course to match our prediction of £30bn, including back-books. 2017 instead stands out as a year of some missed opportunities.

  

 Better pricing was realised through insurers using a wider set of income-bearing assets to generate a competitive yield. This was supported by strong competitive market pricing and a more stable regulatory environment than in past years. This was further augmented by improvements in longevity reinsurance pricing as the year progressed. While 2016 bulk business was dominated by repeat buyers, some of these schemes had run out of pensioners to secure for the time being.

  

 There was insufficient demand from other schemes that would have found a transaction to be feasible, leaving spare capacity. This delay to further market growth looks temporary, with a substantial number of large auctions already in progress in 2018. This has left insurers managing their workload by declining some auctions, favouring well-defined decision-making processes from established broking teams.  

  

 Spare capacity for both pensioner buy-ins and full scheme deals not utilised

 Aon predicts record £30bn bulk annuity market in 2018 as schemes become live to favourable pricing period for annuities

 Longevity swap interest rising following market re-pricing Bulk annuities – scope to use more market capacity

  

 Full report Risk Settlement: UK market update