The total value of bulk annuity deals is set to halve in 2020 in comparison to 2019, reaching around £20-25bn, according to Willis Towers Watson (WTW).

WTW noted that its new prediction falls short of the £30bn it had predicted at the beginning of the year, stating that the decline reflected the changes in affordability for some pension schemes.

WTW senior director, Shelly Beard, said: “Prior to Covid-19, the bulk annuity market was incredibly busy, as demand from pension schemes exceeded supply from insurers. Some schemes were therefore finding it hard to get quotes, creating the potential for pricing to drift upwards over the medium term.

“This slight reset of the market has restored more balanced market dynamics.”

The total value of deals completed in 2019 was found to have exceeded £40bn by Hymans Robertson, though the number of transactions dropped from previous years as larger deals took centre stage.

This year, although disruption has been caused by Covid-19, WTW noted that widening credit spreads have created attractive pricing opportunities for schemes.

Beard said: “It was the schemes that were already in the market who were able to take advantage of the strong pricing we have seen. Although credit spreads have narrowed again over the last eight weeks, there is still potential for more attractive pricing over the remainder of the year.”

She explained that this was due to potential market volatility “but also because insurers are likely to seek out ways to compensate for a fall in new business volumes”, adding that “this could bring about the return of the ‘end of year sale’ for the first time in several years”

Since the beginning of 2020, Willis Towers Watson said it had led 13 bulk annuities, covering more than £3.1bn of liabilities, 12 of which took place during lockdown.

Despite the overall decline bulk annuity transactions, WTW said that the calendar year remained on course to break the record for volume of longevity swap transactions, as more than £25bn of new deals are expected.

WTW had previously predicted that 2020 would be a record year for longevity swaps and stated that the market had remained “busy” despite the ongoing pandemic, adding that a number of transactions were close to completion.

The firm noted that an expected decline in business had resulted in attractive pricing and seen some schemes be able to hedge at little or no cost, relative to their technical provisions.

WTW head of transactions, Ian Aley, said: “Whilst the impact on each scheme today can be monitored, the prospects for future improvements in life expectancy are perhaps more uncertain than they ever have been – and it’s going to be many years before we know in full to how Covid-19 and its economic side effects will affect life expectancies.

“Our clients are taking the view that if they can afford to hedge longevity risk and the pricing looks attractive, now is a good time to proceed, rather than attempting to predict where the market might go in the future.”

Share Story: