Comprehensive Analysis of the Buy-in Market January 2017
Buy-in Monitoring Service
19 Jan 2017
Welcome to the January edition of our Buy-in Monitoring Service, which tracks and analyses conditions in the buy-in market. Highlights of the January edition inlcude:
Pensioner buy-in pricing gets better and better at end of 2016
The final quarter of 2016 saw a rise in the attractiveness of pensioner buy-in pricing offered by insurers. Some schemes that were in a position to take advantage of the opportunity will have been able to transact at a price much lower than the value of gilts required to meet the same liabilities. These opportunities will have been driven by a number of factors including commercial decisions by insurers to offer more competitive pricing so as to get transactions completed before their financial year ends. The introduction of Solvency II also suppressed the volume of business written at the start of the year, resulting in a desire for some insures to catch-up at the end of the year. See our “Buy-in pricing” section for more details.
Buy-in volumes set to surge in 2017
Highly attractive pricing being offered by insurers at a time when some schemes are seeing improvements in funding levels could create the backdrop for 2017 to be a very busy year and we might see buy-in and buy-out volumes of £12bn-£15bn.
Wide range of buy-in pricing between insurers
We have continued to see a wider range of buy-in pricing offered by different insurers than we typically saw before the introduction of Solvency II. In some cases, the range of prices between the cheapest and most expensive insurer has been double that seen in 2015. We are also seeing varying pricing for similar transactions. It is no longer the case that certain insurers are consistently stronger for certain types of transaction. This is not surprising given differences in approach to implementing the new Solvency II regime and the increased focus on sourcing particular assets for each transaction. See our “Buy-in insights” section for more details on the link between insurers’ investment strategies and the prices they are able to offer pension schemes.