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WTW forecasts record longevity & pension risk transfer in 2022


The market for pension risk transfer, across longevity swaps and bulk annuity arrangements, is forecast to see a bumper UK £65 billion of deals in 2022, with strong growth on the longevity swap side anticipated, according to WTW (Willis Towers Watson), while more third-party capital involvement is also expected.

wtw-willis-towers-watson-logoIn 2021, we recorded £12.7 billion of UK focused pension scheme longevity swap arrangements, all of which are recorded in our longevity swaps and risk transfer Deal Directory.

However, broker Aon said just before the end of the year that it anticipated longevity swap volumes would reach £15 billion, once all deals done last year were reported. This suggests there could still be a reasonably sized transaction announced soon, although we cannot confirm that yet.

WTW, meanwhile, believes that nearly £20 billion of longevity swaps were seen in 2021, which suggests there was a significant amount of private deal-flow as well.

Competitively priced insurance and reinsurance capacity helped to drive a busy year in 2021 for the longevity risk transfer and pension de-risking market in the UK.

Competitive pricing from insurers was a major driver again as more well-funded schemes sought to conclude their journey plan by de-risking their liabilities in the insurance market.

“2021 was a year of accelerated activity, starting slowly but finishing with a flourish, and we were pleased to have advised on every longevity swap transaction that was announced in the market last year,” explained Sadie Scaife, Senior Director in WTW’s Transactions team. “The consistently good pricing we’re seeing for clients has been largely due to increased allocations to illiquid assets in insurers’ investment strategies, but also because of better longevity pricing in the reinsurance market. There has also been a lot of innovation in the market this year, including the first longevity swap to cover predominantly deferred members.”

But WTW is expecting an even busier year in 2022, with £25 billion of longevity swap activity anticipated and another £40 billion of bulk annuities, totalling £65 billion and representing strong growth from 2021’s roughly £50 billion estimate by WTW.

That will be a record year, if all the stars align and market conditions remain conducive to getting the deals done that pensions are seeking in 2022.

WTW says that, according to its research, around a third of pension schemes are looking to de-risk their liabilities in the next three years, with 2022 expected to be a peak year because of continued competitive market pricing, pent-up demand from the pandemic and competition between insurance and reinsurance firms that are looking to fill their expanded targets.

While competitive pricing has helped to keep the longevity market the domain of the traditional insurance and reinsurance market, in the main, there is room for additional capital to support the market and with a record year ahead, WTW believes we will see some more third-party capital activity.

Scaife commented, “We know that the market conditions are likely to be favourable this year and the demand from pensions schemes is there, which is why we’re predicting 2022 to be the biggest ever year for pension scheme de-risking across both bulk annuity and longevity swap markets. The £40bn of buy-ins and buyouts we’re anticipating are likely to be from repeat deals as well as new pension schemes coming to market.

“We are also expecting the gradual trend towards full buyouts to continue, as schemes mature and funding levels improve, but also as PPF+ cases complete transactions. In these busy market conditions we expect insurers and reinsurers to become more selective about which opportunities they will commit resources to, with schemes needing to be flexible on timescales if they want to maximise competition.

“For Trustees, more than ever, the focus will be on the security of member benefits, the member experience and an increased focus on Environmental Social and Governance (ESG) issues when selecting a provider for bulk annuities and longevity swaps. With more options now available to schemes, since the approval of the UK’s first superfund, Trustees will expect their insurance partners to demonstrate how they will provide financial security, as well as a commitment to ensuring an excellent member experience through modern and fit for purpose administration, clear communications and detailed transition planning.”

One trend we will be watching out for, is a prediction that the pension de-risking market will see more innovative ways to bring capital to support pensions needs, including from third-party investor sources.

So it is not expected to be all traditional insurance and reinsurance capital supporting a record year of longevity and pension risk transfer, WTW says that “we will also see innovative ways to allocate capital to the defined benefit pensions market, including the growth in third party capital offerings and superfunds.”

Read about many historical longevity swap and reinsurance transactions in our Longevity Risk Transfer Deal Directory.

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