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Bulk annuities offer L&G ‘enormous opportunity’

Legal-and-General-LG-480.jpgLegal and General has hailed the bulk annuities market as an “enormous opportunity” after it struck a significant deal with Rolls-Royce in June.

The luxury car company offloaded a £4.6bn chunk of its pension scheme to L&G, marking the insurance provider’s biggest bulk annuities deal.

But L&G says only around 8 per cent of the £2.2trn of UK defined benefit pension liabilities have transferred to insurance companies so far.

In its results from yesterday, L&G referenced RBC Insurance’s estimate that we will see more than £60bn of demand for bulk annuities within the next two years. It expects the number will continue to grow, against some £30bn of annual insurer capacity.

Bulk annuities boost Just Retirement profits ahead of merger

Analysis by Lane Clark and Peacock published today showed L&G topped the list of insurers underwriting buy in/buy out volumes in the first half of the year, on the back of the Rolls-Royce bulk annuities (buy-out) deal.

LCP analysis concluded that 70 per cent of H1 2019 buy-ins / buy-out volumes were written by L&G and Pension Insurance Corporation who between them absorbed most of the increase in volumes.

Buy-ins / buy-out annuities volumes in the UK by insurer:

Insurer H1 2019
((£m)
H1 2019
share

H1 2018

H2 2018

Total 2018

2018 share (rank)
Legal & General

6,316

36%

507

7,844

8,351

35% (1)

PIC

6,000

34%

3,257

3,881

7,138

29% (2)

Phoenix Life

1,600

9%

470

326

796

3% (8)

Aviva

1,275

7%

1,540

1,056

2,596

11% (3)

Scottish Widows

770

5%

1,105

660

1,765

7% (4)

Rothesay Life

715

4%

170

755

925

4% (7)

JUST

512

3%

718

596

1,314

5% (6)

Canada Life

389

2%

0

1,333

1,333

6% (5)

Total

17,577

100%

7,767

16,451

24,218

100%

Source: Insurance company dataOnly buy-ins and buy-out with a UK pension scheme are included. The table therefore excludes the £12bn transfer of annuities from Prudential to Rothesay Life in March 2018.

Aviva locks in £600m bulk annuity deal

L&G’s total £6.3bn worth of deals in the first half of 2019 secured its top spot position. It was closely followed by Pension Insurance Corporation which secured £6bn in the period.

Overall insurers racked up a record £17bn – the highest volume of deals in any first half period since 2007 when records began.

LCP says: “The record £34bn volumes in the past 12 months included the three largest buy-in/out transactions ever: the £4.6bn pensioner buy-out by Rolls-Royce in June 2019, the £4.4bn pensioner buy-in by British Airways in September 2018 and the £3.4bn buy-in by British American Tobacco in May 2019. There have been two further £1bn plus transactions to date in 2019 by the schemes of Marks & Spencer and Commerzbank.”

The chart below shows the volume of buy-ins and buy-outs since 2007 split by half year including an expected further £15bn in H2 2019. Further details can be found in the table which follows, given in £bn.

Year
£bn

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

H1

0.9

3.9

1.5

2.0

1.6

1.3

1.7

6.9

4.4

2.7

5.1

7.7

17.6

H2

2.0

4.0

2.2

3.3

3.6

3.1

5.8

6.3

7.9

7.5

7.2

16.5

Total

2.9

7.9

3.7

5.3

5.2

4.4

7.5

13.2

12.3

10.2

12.3

24.2

Source: Insurance company data. LC&P prediction for H2 2019

LCP partner Charlie Finch says: “Total first half volumes have comfortably topped £15bn in line with our predictions, marking a record half year for buys-in and buy-outs as activity continues at a frenetic pace.

“FTSE 100 transactions are continuing at a rapid pace. In the past week alone we have seen giant longevity hedging transactions announced by British American Tobacco and HSBC taking the number of FTSE 100 transactions to six so far this year.

“Our team has had its busiest year to date, completing a record of £10bn deals so far in 2019 as large blue-chip companies increasingly seek specialist support to de-risk their schemes.

“Insurer pricing has held up well and we continue to expect 2019 full year buy-in and buy-out volumes to exceed £30bn as large transactions compete for market capacity in the second half of the year.”

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