Risk Settlement Market 2019 Introduction a Record Year, with More to Come
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Risk Settlement Market 2019 Introduction A record year, with more to come As widely predicted, 2018 was a record year for the bulk annuity market. The continuation of strong bulk annuity pricing across the market, driven by increased appetite and continued innovation from insurers, led to £30Bn of risk being transferred over the year. From Aon’s perspective, we were able to capitalise on Other highlights of the articles that are covered include Martin Bird these conditions to achieve the best results possible for reviewing your long-term strategies, looking at the [email protected] scheme members across over 20 deals ranging from latest trends in longevity and the growing importance £2m to £1.5Bn. Within the review, we have included of dependant modelling. We also look at what the an in-depth look at the PA Consulting case study where future holds with the emergence of commercial Preparation is key to avoid we achieved an outcome which far exceeded the consolidators and increasing use of technology. disappointment. scheme’s expectations through a combination of the We close with a review of what is happening in the full range of liability management exercises. overseas markets where other countries are starting With rising demand, and the number of mega-deals to catch up with the UK in focusing on and managing expected to reach an all-time high in 2019, insurers are The majority of press coverage during 2018 was pension risk. able to be more selective about the schemes that they devoted to the increasing number of £Bn-plus choose to price. deals that were completed, and we examine how The first part of 2019 has continued where 2018 left preparation and timing for these deals is crucial for off, with a number of multi-billion pound deals entering Insurers will continue to focus their resources on securing the best price. However, there was lots the market, including the Rolls-Royce UK Pension Fund, transaction-ready schemes, particularly at the smaller of activity in other segments of the market – and who completed a partial buyout in excess of £4.6Bn. end of the market, and so a clear de-risking objective particularly for bulk annuity transactions below £30m, This is the largest ever UK buyout, for which Aon was and thorough preparation will be key in order to attract where we observed varying appetites from insurers, lead advisor of the trustees. We also saw a continued the very best pricing available. with attractive pricing achieved for transactions of flow of buy-in and buyout deals in the smaller and this size from many providers. You will read in more mid-market range, and we are seeing increased I hope you enjoy reading the selection of articles detail the ways this might enhance the opportunities interest in longevity hedging as the market continues and that they provide food for thought. Do get in available for schemes who are concerned about being to adapt to the new environment of lower mortality touch with me or one of the team if you would like squeezed out of the market. improvements. to talk in more detail about opportunities for your own scheme. 2018 in review At the start of 2018 we expected a record-breaking year for the bulk annuity market. We predicted over £30Bn of risk settlement activity and the market delivered, with over £35Bn of business being placed. Dominic Grimley Business placed £24.1Bn [email protected] £13.2Bn £12.3Bn £12.3Bn £10.2Bn £8.1Bn £7.2Bn £5.2Bn £5.3Bn £4.5Bn £2.9Bn £3.7Bn £1.5Bn 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Business under Solvency ll regime The key factors driving this bumper year were: But it was not just the total market that broke records in 2018: • Exceptional pricing in the market, driven by better illiquid asset • PIC, Legal & General, Aviva, Scottish Widows and Canada Life all wrote their sourcing capabilities and competition; largest volume of bulk annuities to date; • Strong capacity from the global reinsurance market, which acts as a • Six of the eight insurers wrote their largest external deal to date, some several times over; key support to capacity in the annuity market; • Phoenix Life wrote their first external bulk annuities as they continued to grow their capabilities. • Improved scheme funding, with more schemes finding themselves With all eight insurers now firmly established, pricing is expected to remain competitive. within touching distance of settling their liabilities. There was also a new record deal size in the back-book market, with Rothesay Life surprisingly This restored the long-term growth pattern of bulk annuities, following taking on the whole of a £12Bn tranche of annuities from Prudential, who had permanently pulled interruptions from the credit crunch (2008) and transition to the tougher out of the annuity market. Solvency II regulatory regime (2015-16). Annunity business — 2018 Annunity business — 2018 ■ Legal & General ■ Legal & General ■ PIC ■ PIC Solution: ■ Aviva ■ Aviva Property insurance and consulting ■ Scottish Widows ■ Scottish Widows ■ Canada Life ■ Just Group Aon can enhance your property coverage in two ways by: ■ Just Group ■ Phoenix 1. Aon’s 10-step property risk consulting to improve your property risk maturity ■ Rothesay Life ■ Canada Life ■ Phoenix ■ Rothesay Life 2. Introduce significant capacity in addition to your local insurance market through: • Our dedicated Global Broking Centres in London, Singapore and Bermuda. This will give you unparalleled access to the global insurance market • Pioneering market innovations such as the Aon Client Treaty provides 20% pre-secured Lloyd’s capacity on any order placed through one of Aon’s Global Broking Centres. Except for specialists PIC and Rothesay Life, these The Aon settlement team were lead adviser on 16 The first quarter – normally a comparatively quiet insurers also make up almost all of the remaining transactions of over £100m in 2018 (another record!). period – has seen several large new transactions, individual annuity market. Key to our rate of conversion is advance preparation, with those for the Co-op, Pearson and Société close monitoring of the market and flexibility over Générale already in the public domain, and a large 2018’s bulk annuities were dominated by large the timing and manner of deal completion. number of auctions due to close by the autumn transactions – Legal & General secured the largest including several £1Bn+ full scheme buyouts. ever annuity for a pension scheme (£4.4Bn with There is still a market for smaller transactions. British Airways) and three more £1Bn+ annuities Four insurers are routinely writing transactions A busy market is not without its challenges. were placed with PIC and Legal & General. This below £100m, with some attracting pricing that is Insurers are particularly selective over auctions led to a temporary shortage of asset opportunities surprisingly similar to that attained by the largest in 2019, favouring the best-prepared schemes. to back new deals, in the autumn. cases. In order to help more schemes access the market, Aon has worked with insurers to develop Size Insurer Business Type our new ‘Streamlined Compass’ approach for £4,400m L&G BA Pensioner annuity smaller transactions, designed to maximise insurer engagement and deliver the best possible pricing. £2,400m L&G Nortel Full scheme annuity £2,000m Zurich National Grid Longevity swap So we turn to 2019 and the market shows no sign £1,515m PIC Rentokil Full scheme annuity of slowing down, with Aon predicting another year £1,300m PIC Siemens Pensioner annuity where risk settlement activity tops the £30Bn barrier. Solution: £925m Aviva M&S Pensioner annuity Pricing remains competitive. £880m SW Littlewoods Pensioner annuity Property insurance and consulting £850m PIC PA Consulting Full scheme annuity Aon can enhance your property coverage in two ways by: £770m PIC BHS Full scheme annuity 1. Aon’s 10-step property risk consulting to improve your property risk maturity 2. Introduce significant capacity in addition to your local insurance market through: • Our dedicated Global Broking Centres in London, Singapore and Bermuda. This will give you unparalleled access to the global insurance market • Pioneering market innovations such as the Aon Client Treaty provides 20% pre-secured Lloyd’s capacity on any order placed through one of Aon’s Global Broking Centres. Aon Risk Settlement Team 2018 highlights Lead adviser to schemes completing £100m+ transactions in 2018 (*based on disclosed data – typically only published for larger deals) Lead Advisor Schemes advised Aon 17 LCP* 10 26 c30% Mercer* 5 bulk annuity of total market KPMG* 3 transactions volume advised Willis Towers Watson* 3 completed by Aon in 2018 Hymans Robertson* 2 in 2018 PWC* 2 Other transactions* 3 16 8 bulk annuity Bn Lead adviser to Schemes carrying out over £500m £11 transactions with transactions of liabilities transactions since 1 January 2014 8 active insurers (*based on disclosed data) £100m or over secured in 2018 during 2018 over 2018 Lead Advisor Schemes advised Aon 11 LCP 8 Mercer 3 Solution: PWC 2 Recognised excellence Barnett Waddingham 1 Property insurance and consulting KPMG 1 Aon can enhance your property coverage in two ways by: Undisclosed 2 1. Aon’s 10-step property risk consulting to improve your property risk maturity 2. Introduce significant capacity in addition to your local insurance market through: • Our dedicated Global Broking Centres in London, Singapore and Bermuda. This will give you unparalleled access to the global insurance market • Pioneering market innovations such as the Aon Client Treaty provides 20% pre-secured Lloyd’s capacity on any order placed through one of Aon’s Global Broking Centres. Contents Click on a section >> Bulk annuities Bulk annuity case study PA Consulting Michael Walker “Buyout was something we never thought was possible two years ago when we [email protected] appointed Aon.