The retirement risk transfer activity is expected to increase in H2 2021 – DB & Derisking


Data of the sister title of Pensions Expert Mandate show that pension funds signed a total of 23 repurchase, repurchase and longevity swap agreements in the first six months of 2021, compared to 25 pension risk transfers tracked in the same period last year .

Bulk annuity inflows have fallen by more than 70%, from £ 18.9bn in the first half of 2020 to £ 5.6bn in the first six months of this year.

The appetite of trustees and sponsorship companies to reduce their exposure to retirement risk remains strong and competition among insurers has been fierce

Legal & General

The significant drop in inflows can be explained by more modest pension risk transfer transactions that were concluded this year. Data shows an average deal size this year of around £ 260million, up from £ 900million in 2020.

The high inflows of the past year were driven by large individual transactions, such as the £ 10bn longevity swap guaranteed by the Lloyds Bank No.1 pension scheme of £ 17.9bn sterling, the Lloyds Bank No.2 pension of around £ 8 billion and the HBOS final salary of £ 13.7 billion. Pension plan.

The plans transferred their pension liabilities to Scottish Widows, who then transferred the risk to Pacific Life Re in order to protect against the financial risk of an unexpected increase in life expectancy.

The biggest known deal of this year to date was the £ 3bn longevity swap deal signed by the estimated £ 6.3bn Axa’s group pension scheme in the UK with the insurer Hannover Re.

The scheme’s decision to cover “a significant number of deferred members” was seen as a first in the UK pension market, Axa said in a statement.

In April, a large UK pension scheme also revealed a £ 6 billion longevity swap deal with Prudential Insurance Company of America, Zurich acting as intermediary on a pass-through basis. However, the name of the pension plan was not disclosed.

Low prices thanks to alternatives

Industry experts expect risk reduction activities to resume in the second half of this year.

In its August overview of the pension risk transfer market, Legal & General predicted a “healthy pipeline” of buyback and buyback deals for the remainder of the year.

“The appetite of trustees and sponsorship companies to reduce their retirement risk exposures remains strong and competition among insurers has been fierce, with well-prepared pension plans taking advantage of attractive opportunities to secure their members’ benefits.” , did he declare.

With the introduction of the Pension Schemes Act 2021, which will require UK administrators of defined benefit plans to set a long-term goal and achieve the goal when the plans are sufficiently mature, L&G expects a increased demand for risk reduction strategies such as cash flow oriented investments and retirement risk transfers.

Although credit spreads have tightened, “insurers continue to offer favorable prices by extracting value by investing in alternative asset classes,” L&G said.

Responding to fiduciary demands, insurers are also increasingly focusing on integrating environmental, social and governance factors into their risk frameworks, he added.

The end-of-year rush?

If attractive prices are available and the upward trend of last year persists, there could be an increase in pension risk transfers towards the end of the year.

MandateWire tracked 37 retirement risk transfer transactions, with asset inflows of £ 27.7 billion in the second half of last year. Almost 68% of these transactions were concluded during the last quarter of the year.

The largest transaction reported by MandateWire was a £ 5 billion longevity swap guaranteed by the £ 31.4 billion Barclays Bank UK pension fund with Reinsurance Group of America.

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