Records continue to be made redundant within the pension risk transfer space as 2019, as predicted, ended up being another massive year for de-risking. Over £40bn worth of deals transacted during the calendar year, beating even the most optimistic of predictions.
Understandably, a snapshot of last year’s market will be dominated by the larger transactions, with 11 deals totalling three quarters of the overall value. This was to the detriment of some of the smaller schemes which, in some cases, could not compete in terms of scale. However, predictions for next year from Lane Clark and Peacock suggest that there will be fewer mammoth schemes transacting, with ten deals estimated to total £15bn. This would open up capacity for deals of a variety of sizes to gain traction within the market.
On the provider side, 2019 was dominated by a surge of activity from Rothesay with over £16bn worth of deals being announced from August onwards, including the largest pension buy-out ever with Telent worth £4.7bn. On a similar note, Legal and General completed the largest ever pension buy-in with Rolls-Royce, totalling £4.6bn, en route to buy-out.
Aon and LCP were the busiest of the consultants, advising on £20bn and upwards of £10bn respectively. There remains a fair fight for the third most prevalent consultancy within the bulk annuities space. Hymans Robertson advised on the Allied Domecq deal as well as the M&S and Aviva deals; PwC appear to be following the model of transacting infrequent but large deals after consulting on the £3.8bn Asda deal a year on from the £4.4bn BA deal; after merging with JLT, Mercer advised upon the £3.4bn BAT deal as well as providing strategic investment advice on the Rolls Royce deal; and Willis Towers Watson were perhaps quieter than expected, focussing primarily on longevity swaps, but still advised on two multi-billion pound buy-in deals with National grid.
In terms of public announced deals, KPMG have had a quieter year - their only publicly credited deal being the £805mn Electricity Supply buy-in coming at the very end of the year. With Tom Seecharan moving to Rothesay, they have been perhaps slightly underpowered compared to their competitors, but we await news amidst discussion of an acquisition or merger.
Looking forward to 2020, appetite from insurers and corporates remains strong. This is driven by a number of factors: In his article The bulk annuity market changes up a gear, Guy Freeman of Rothesay points to good availability of capital, higher levels of solvency due to asset-liability outperformance, increasing acceptance that insurers can manage long-dated asset-liability risks more efficiently than corporates, and increasing regulatory pressure forcing sponsors to declare long term investment strategy, triggering the consideration of eventual buy-outs as their ultimate de-risking goal.
However, due to the size of schemes able to transact, both LCP and Willis Towers Watson predict that the market will not go on to break records for the fourth year in a row and will instead max out at around £30bn. As previously mentioned, this is likely to allow a larger number of smaller schemes to gain traction in the market. This may have the secondary effect of dividing the market share amongst both the insurers and consultancies as more schemes of a manageable size are available to be competed for. Perhaps this will limit the dominance of Rothesay, or Aon and LCP, and allow smaller firms to enter the market.
To discuss the market in more detail and see how Plenum’s network in the space can be of use please contact:
Ed Rees or TC Jefferson.
ed.rees@theplenumgroup.com 07903567238
tcjefferson@theplenumgroup.com 07581466620