2019 saw total market volumes exceed £40 billion, a figure that only a few years ago would have seemed impossible. To put this into context, £40 billion is more than the total business written in 2018 (a record year in itself) and 2017 combined. But what’s in store for 2020 and can the market continue to achieve these volumes year on year?
2019 was a record-breaking year for the bulk annuity market. We saw the largest buyout ever from Telent’s £4.7 billion fund and the largest buy-in with Rolls Royce’s (£4.6 billion). We also saw the largest fund (National Grid at £20 billion of assets) and the largest UK company (BAT with a market capitalisation of over £70 billion) complete major transactions in the market, making 2019 a year of firsts.
2020 is shaping up to be another busy year for the market with schemes continuing to de-risk using insurance solutions. We anticipate that the first half of 2020 will see more mid-tolarge transactions and fewer of the very large transactions that dominated 2019.
The absence of multiple very large schemes seeking insurance solutions right now may mean that capacity for mediumsized schemes will increase, and, therefore, it could be a good time for such schemes to approach the market. Limits on resources mean that insurers are likely to continue to be selective on what they quote on, therefore preparation and planning remains key to getting noticed in a busy market.
So, what should schemes be thinking about?
Typically, it takes many months and even years for trustees and their schemes to be in a position to approach the bulk annuity market for a quotation. As an insurer we usually only join the process when trustees are well progressed in their journey to secure a bulk annuity contract. With finite resources available we often look at what steps the scheme has taken prior to approaching the marketplace in order to assess which schemes have the highest likelihood of transacting and therefore which opportunities we should focus on. Positive indicators include:
• The company and trustees are working together effectively towards a common goal
• Experienced advisers, who regularly see the completion of transactions, have been appointed
• The trustees and company have considered, and begun working through, any complex issues (such as illiquid assets or complex benefits) that might block or stall a transaction.
In contrast, we might be warier of a process where there is an inability to articulate a price hurdle, poor quality data and/or no experience data.
Right now it may seem like highs of £40 billion won’t be on the cards for 2020 but this market has the ability to change quickly and with increased regulatory pressure on funding it wouldn’t be surprising if more sponsors of all sizes decide that the time is now right to plan for exit via a buy-out.
Business Development – Rothesay Life