lcp pensions de-risking quarterly update april 2016 … · lcp pensions de-risking quarterly update...
TRANSCRIPT
IN THIS ISSUE
p2 Q4 2015 activity
p3 Market update
p3 Buy-in price monitoring
p4 Blogs - The LCP View
In this edition we look at:
� Record volumes of buy-ins and buy-outs in the fourth quarter of 2015
� Pensioner buy-in pricing under Solvency II
� Medical underwriting and the impact of the Just Retirement and Partnership merger
� LCP’s latest blogs on the de-risking market
LCP PENSIONS DE-RISKING QUARTERLY UPDATE APRIL 2016
Record final quarter drives UK buy-in and buy-out volumes to over £12bn for 2015
Welcome to LCP’s review of the latest developments in the buy-in, buy-out and longevity swap market Measuring and
managing longevity risk26 APRIL 2016 8:30AM
Volume of buy-ins and buy-outs from 2007 to 2015
Source: Insurance company data
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2
4
6
8
10
12
14
2007 2008 2009 2010 2011 2012 2013 2014 2015
£ b
illio
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Quarters 1-3 Quarter 4
This breakfast briefing is designed for any
corporate or trustee representatives involved
in pension scheme risk management and
investment strategy and is relevant for
schemes of all sizes. You will hear from
LCP specialists and a guest speaker,
longevity expert Richard Willets.
What will we cover?
� How longevity risk can vary for different
types of pension schemes and the
implications for ensuring effective risk
management strategies
� How you can use LCP LifeAnalytics to
make better informed decisions at each
stage of your de-risking journey
� Practical examples of how to create an
integrated framework for measuring
and managing longevity alongside
investment risk
Register on the LCP events page
LCP Pensions de-risking quarterly update April 2016 2
A total of £5.4bn of pension buy-ins and buy-outs
were transacted in the final quarter of 2015 making
it the largest quarter on record in the UK, driven
by pension plans and insurers seeking to close
transactions ahead of the introduction of Solvency
II on 1 January. Final buy-in and buy-out volumes in
2015 reached £12.3bn – falling only just short of the
£13.2bn record set in 2014.
Headlines from 2015 include:
� Pension Insurance Corporation (PIC) had the
largest market share with £3.8bn or 31% of the
total. This included a £2.4bn transaction with
the Philips Pension Fund as the final step in their
£3.5bn full buy-out – the largest full buy-out to
date.
� Legal and General (L&G) saw transaction volumes
in the UK decline to £2.0bn from £6.0bn in 2014,
as they focused on preparing for Solvency II and
developing their overseas offering, but their market
share in the UK at 16% was still third largest, after
Rothesay Life.
� Six longevity swaps totalling £9.4bn were
completed in 2015 compared to three longevity
swaps totalling £21.9bn in 2014. December saw the
first longevity swap under £100m.
Since the year-end the market has remained active,
with a high level of quotation activity and the ICI
Pension Fund continuing their de-risking journey with
a further £330m buy-in in March 2016.
LCP has continued our success in helping clients
successfully de-risk, being lead adviser on nearly
half of all buy-ins and buy-outs over £100m in 2014
and 2015.
Buy-in/ buy-out premiums (£m)
Q1 - Q3
2015
Q4
2015
Total 2015
(share)
Total 2014
(share)
Aviva 485 499 984 (8%) 874 (7%)
Canada Life1 5 27 32 (0.3%) n/a
Just Retirement 358 598 956 (8%) 441 (3%)
Legal & General 1,237 740 1,977 (16%) 5,969 (45%)
Partnership 92 186 277 (2%) 247 (2%)
PIC 939 2,872 3,811 (31%) 2,567 (20%)
Prudential 1,494 21 1,515 (12%) 1,706 (13%)
Rothesay Life2 2,275 63 2,338 (19%) 1,400 (11%)
Scottish Widows1 n/a 394 394 (3%) n/a
TOTAL 6,886 5,400 12,284 13,203
Source: Insurance company data. Transactions by UK pension plans only. 1 Canada Life and Scottish Widows entered the buy-in and buy-out market in the second half of 2015 so have no business in 2015 Q1 and Q2.2 Excludes the £1.3bn transfer of annuities from Zurich to Rothesay Life (and the subsequent £82m up-size in December).
Longevity swaps in 2015 (£m)
Pension scheme
Intermediary Q1 - Q3 Q4 Total
MNOPF MNOPF IC Ltd (captive insurer)
1,500 - 1,500
Scottish
Power Abbey Life
(Deutsche Bank)2,000 - 2,000
AXA UK AXA 2,800 - 2,800
Heineken Friends Life (Aviva)
2,400 - 2,400
RAC Aviva Life & Pensions
- 600 600
Undisclosed Zurich Assurance - 90 90
TOTAL 8,700 690 9,390
Source: Publicly announced transactions to date
Record activity in the final quarter of 2015 ahead of the introduction of Solvency II
Further details of previous years can be found in
our 2015 de-risking report on the buy-in, buy-out and longevity swap market available here.
3LCP Pensions de-risking quarterly update April 2016
Pensioner buy-in pricing remains competitive and new developments in medical underwriting
Record number of market participants
The entrance of Canada Life and Scottish Widows into the market in 2015 means that there are now a record number of active market participants, even after the completion of the merger of Just Retirement and Partnership. For recent pensioner buy-ins as many as eight insurers have submitted quotations.
Pensioner buy-in pricing remains keen under Solvency II
Pensioner buy-in pricing has continued to be attractive under Solvency II following its introduction on 1 January 2016. The additional competition and an increase in yields on long-dated credit has led to pensioner pricing close to or better than a “gilts-flat” valuation, meaning pension schemes can exchange a portfolio of gilts for a buy-in at limited cost or even an improvement in funding.
Medical underwriting
In 2015 volumes of medically underwritten buy-ins reached nearly £1.5bn - more than double the £0.6bn written in total prior to 2015. Just Retirement and Partnership between them wrote over 90% of such transactions and so price competition may ease following the completion of their merger on 4 April 2016. LV= has announced that they are not entering the market for the time being. However, L&G completed the largest medically underwritten buy-in to date at in December 2015 (£230m with Kingfisher’s pension plan) which brings welcome additional competition at the larger end of the medically underwritten market.
Over 2015, we have developed new transaction structures that allow medically underwriting providers to quote alongside conventional providers without impacting cost or insurer appetite to participate. As well as addressing concerns about reduced competition, this allows a faster execution process whilst still benefiting from medical underwriting price savings, where available.
LCP Visualise’s online insurer price tracker is based on direct
pricing feeds from key insurers in the market. For a typical scheme
pensioner buy-in pricing has improved over early 2016 and the best
pricing is typically close to or better than a “gilts-flat” valuation.
LCP Visualise helps pension plan
trustees and sponsors identify when to
approach the market, based on a range
of indicative insurer pricing.
To access visit: lcpvisualise.com
LCP Pensions de-risking quarterly update April 2016 4
A collection of our latest blogs on de-risking market
Blogs - The LCP View
Using top-slicing effectively as part of your pensions de-risking strategyBy: Gareth Davies
A “top-slice” buy-in, targeting your highest
liability members, can help you to remove
more longevity risk for a lower price, leaving
you with residual liabilities that are easier to
insure through subsequent de-risking.
Continue reading this blog
Longevity swaps – do they create a barrier to buy-in or ultimate buy-out?By: Murray Blake
Murray Blake gives his views on whether pension
schemes will be able to pass longevity swaps
across to an insurer if or when they eventually
move to buy-in or buy-out.
Continue reading this blog
How smaller schemes can avoid being crowded out of the buy-out marketBy: David Stewart
David Stewart looks at the challenges facing
small schemes wishing to de-risk through
buy-ins and buy-outs and provides his top 5 tips
for engaging effectively with insurers to avoid
over-paying.
Continue reading this blog
Is your longevity risk really 5%?
By: Michelle Wright
Michelle Wright explains what longevity risk
is, the limitations of some measurement
approaches and how longevity risk can be
measured more effectively using LCP’s unique
new tool, LCP LifeAnalytics.
Continue reading this blog
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may change in the future. Such changes cannot be foreseen. This document is prepared as a general guide only and should not be taken
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Clive Wellsteed
Partner & Head of [email protected]
LCP has led nearly 50% of all buy-ins and buy-outs over £100m over the past 2 years*Want to know why?Contact us to discuss the work we have been doing and
how we can help you identify opportunities for your
pension scheme.
WINNER
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*LCP advised 12 of 21 in 2014, and 6 of 18 in 2015.
+44 (0)20 7432 6644
Charlie Finch
Myles [email protected]