RISK TRANSFER MARKET WATCH - JULY 2019 HEALTH WEALTH CAREER - Mercer Signature Events
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H E A LT H W E A LT H CAREER PENSION RISK TRANSFER M A R K E T W AT C H J U LY 2 0 1 9
TA B L E O F C O N T E N T S Introduction 1 UK Risk Transfer Market: to Infinity and Beyond 3 Member Flexibility and Choice: Maximising Engagement and Avoiding the Pitfalls 5 Insurer Roundtable 10 Defined Benefit Pension Consolidators 15 Longevity Trends 19 The Market in Numbers 21 Meet the Team 23
Welcome to our latest Market Watch, which provides a timely update on the pension risk transfer market and shares our own expectations, together with those of four prominent insurers, for H2 2019 and beyond. 1
As we reported earlier this year, 2018 was far With such a busy year in prospect, I’m very
and away the biggest year on record for the pleased to announce Mercer’s enhanced
risk transfer market, and 2019 is shaping up risk transfer capabilities following MMC’s
to be equally significant. There were around acquisition of JLT on 1 April 2019, most
£15bn of bulk annuity transactions completed noticeably our increased ability to service
in the first half of 2019, including the record- smaller risk transfer cases and our
breaking £4.6bn Rolls-Royce buyout with Legal strengthened project management capabilities.
& General, on which Mercer were delighted to We are now uniquely placed to service the
provide strategic investment advice. Individual whole marketplace, from the very smallest to
defined benefits (DB) to defined contribution the very largest schemes, and I extend a warm
(DC) transfers also continue in high volumes. welcome to our newest Risk Transfer Group
members and their clients.
While the final 2019 risk transfer market
volumes will depend on the number of mega I trust you’ll find plenty of interest in this
(£1bn+) deals transacted, it is quite possible edition, wherever your scheme sits on its risk
that we could see £35bn-£40bn of bulk transfer journey. As ever, we’d love to hear your
annuities and longevity swaps this year, plus ideas and have the opportunity to support you
some £20bn-£30bn of individual transfers. in your immediate or longer-term de-risking
New consolidation options are also available. endeavours. Do keep in touch.
ANDREW WARD
Leader Risk Transfer and DB Journey Planning
+44 (0)207 178 3458
andrew.x.ward@mercer.com
We have a TEAM OF OVER 50 EXPERTS LEAD ADVISER on around 400 BULK
across all areas of risk transfer. ANNUITY TRANSACTIONS since 2006.
Involved in over £8BN of BULK Implemented more than 400 MEMBER
ANNUITY TRANSACTIONS so far in 2019. OPTION EXERCISES in the last 5 YEARS.
2
U K R I S K T R A N S F E R M A R K E T:
TO INFINIT Y AND BEYOND
David Ellis considers the future direction of the risk transfer
market and how schemes can best prepare for the opportunities
it will bring.
THE TREND DRIVING THE MARKET
Time passes. And with it pension scheme So it’s clear that sponsoring employers and
members age and so their remaining lifetimes trustees are increasingly looking for the best
become more predictable. In the financial world, ways not just to manage their legacy defined
predictability is good – it reduces cost and risk. benefit schemes but to settle them and move on
And over time, pension schemes become better permanently – where in general those schemes
funded – financial conditions come and go with are larger than ever relative to their sponsors,
the years, but ever-shortening liability durations which tend not to have grown as fast as the
and ever-larger cumulative contributions from schemes’ finances have grown in recent years
sponsoring employers push the finances upwards. due to reducing interest rates and contributions
from the sponsor.
So it’s no surprise that more and more pension
schemes reach their “price” and deals are done to So how best to move forward where maintaining
transfer responsibility elsewhere. Similarly, as time the status quo is increasingly unacceptable?
passes, the pension schemes become increasingly Everyone recognises the individual members’
legacy obligations of their sponsoring employers – livelihoods at stake. The needs of the sponsoring
often closed to new entrants many years ago and employer and its stakeholders are important too.
often with the sponsor’s current employees earning Step forward the modern pension risk transfer
further benefits via an alternative arrangement. market, where the byword is choice.
Again, it’s no surprise that sponsors want to take
proactive action, when they can.
Bulk Annuity Business Volumes (£BN)
25 250
20 200
15 150
10 100
5 50
0 0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Premium volume Deals over £500m Deals under £500m Number of transactions
32019 AND BEYOND There are other common themes too – as ever,
centred on preparation. Getting your house
Buy-ins and buyouts (full or partial), longevity in order (data, assets and governance are
swaps, member options and DB pension good examples) before you go to market has
consolidators are available – all in various always been good advice, especially where your
flavours, all customisable and with an ever- potential counterparties are busier than ever.
increasing range of offshoots to serve niche Getting the timing right and understanding in
demands. Increasingly, the hardest thing is advance what represents a good outcome for
working out which strategy to pursue and you are also very important.
knowing that you are doing the right thing for you.
T H E F U T U R E D R AW S N E A R E R
All these strategies are growing in 2019 in the
UK, in both demand and supply. And growth So whatever risk transfer strategies you
seems set to continue for the foreseeable decide to pursue, you should bear in mind that
future. The bulk annuity market, for example, increasing numbers of others are doing just the
has seen close to £10bn of deals announced same. Hence preparation and conviction are
in 2019 (to early June), bulk annuity volume for the orders of the day. Those and knowing that
H1 2019 is likely to reach £15bn. Pricing is low getting it right means you can achieve the best
by historical standards and insurer appetite outcome for the sponsor, the trustee and the
continues, so far, unabated. members – a genuine win-win-win.
DAVID ELLIS
Head of UK Bulk Annuities
+44 (0)113 394 7591
david.ellis@mercer.com
4MEMBER FLE XIBILIT Y AND CHOICE: MA XIMISING ENGAGEMENT AND AV O I D I N G T H E P I T FA L L S Maurice Speer highlights the latest trends and best thinking in member option exercises. Member option exercises continue to be a fundamental risk management tool for trustees and sponsors and are being deployed in a range of situations – from ongoing scheme management to bridging the gap to full buyout. Increasingly, we are seeing trustees take a proactive role. For example, many trustees are taking the view that offering flexibility and choice to members, within a clear governance framework, is part of their fiduciary duty. The numbers are staggering. In the last two years, there have been almost £70bn of pension transfers (source: ONS) – double what we witnessed in the previous four years – the majority expected to be from DB schemes. 5
6
HELPING YOU SECURE MEMBERS’ FOCUS: THE PENSION TRANSFER
BENEFITS IN FULL G O L D S TA N D A R D
Offering member options in advance of a buy- The Personal Finance Society’s “Pension
in or buyout can materially reduce the overall Transfer Gold Standard” code — which commits
price paid for settling pension scheme benefits. a firm and its advisers to nine principles of good
Whether the options offered are to remove small practice — was developed following the fallout
benefits from the scheme, transfer members from the closure of the British Steel Pension
to an alternative arrangement or reshape the Scheme last year, in consultation with a number
pensions in payment, each one can help narrow of industry representatives and regulators
the gap to full liability settlement. Any scheme (including the Financial Conduct Authority, the
looking to secure a bulk annuity policy within a Association of British Insurers and The Pensions
one to two-year time frame should therefore Advisory Service).
review the feasibility of member options as part
of the early project planning.
“We have been involved with
SUPPORTING YOUR MEMBERS the Pension Transfer Gold
It’s important that members are aware of the Standard since inception. It’s
decisions they are required to make and the designed to provide minimum
consequences of those decisions. Worryingly,
last year, the Financial Conduct Authority
standards of practice that
revealed that, in a recent review of “high should be followed by all
street” financial advisers (i.e. not those that financial advisers operating
Mercer works with or who would typically
be involved by pension schemes for bulk
in this complex and high
exercises), 50% of transfers were carried out profile area. We see this as
following unclear or unsuitable advice. positive to members, trustees
We support trustees and sponsors in selecting and employers and would
well-qualified, reputable financial advisers encourage all advisers to sign
to support their scheme members in one of
the most important financial decisions they
up and meet these standards.
will ever make. Even where the Code of Good This should give all parties
Practice on Incentive Exercises does not reassurance regarding their
recommend that a sponsor pays for financial
advice then, as a minimum, members can be
selected financial adviser.”
provided with a list of trusted advisers that LEBC THE RETIREMENT ADVISER
have been thoroughly researched.
7R E T I R E M E N T E D U C AT I O N
On the back of our innovative personalised
videos for DC schemes, we are now using
personalised videos on member options
exercises to encourage member engagement
(example available on request). Initial reactions
from members have been very positive.
G M P E Q U A L I S AT I O N
While we saw a delay to some member options
exercises in the immediate aftermath of the
October 2018 Lloyds Ruling, many clients
took the view that the decision on whether to
conduct an exercise should not be driven by
what would ultimately be a very small change
to benefits for most members. This decision
has been further simplified where advisers
(including Mercer) have updated their transfer
value calculation tools to incorporate a GMP
equalisation adjustment.
MAURICE SPEER
Principal
+44 (0)28 9055 4225
maurice.speer@mercer.com
89
I N S U R E R R O U N D TA B L E
Ruth Ward seeks the views of four bulk annuity insurance providers
on how the risk transfer market will pan out over 2019 and beyond
and how schemes of all sizes can best command their attention.
RUTH WARD
Principal
+44 (0)207 558 3036
ruth.ward@mercer.com
Julian Hobday
Guy Freeman
Director,
Business Development,
Pension Risk Transfer,
Rothesay Life
Legal & General (L&G)
Peter Jennings Stephen Purves
Business Development Head of Core New
Manager, Defined Benefit Business, Corporate &
Solutions, Just Group Business Solutions, Aviva
101. What are your expectations for 2019 in terms of new business volumes and
size/ type of deals? How can modest-sized schemes get quotes? For example,
would it help to standardise the broking data layout?
▶ L&G ▶ R O T H E S AY
2018 was a record-breaking year for the bulk Our pipeline includes many large cases and it’s
annuity market, with over £20bn of pension likely that £30bn of pension deals could complete
scheme liabilities secured with UK insurers. After in 2019. This would be less than the £35bn-
such a step change, there is every indication that £40bn of bulk annuity business that closed in
such volumes can and will be the new norm. Our 2018 (including insurer-insurer back-book deals)
current pipeline suggests that 2019 will be a very and shouldn’t stretch capacity. It is to be seen
busy year for the market. whether the increase in volume involves a greater
number of deals completed or just another
Although larger transactions have dominated increase in average transaction size.
the headlines, we would still encourage smaller
pension schemes to continue to seek bulk Medium-sized schemes will get quotes if they
annuity quotes. For these, the key to getting are clear about their price targets and intend
engagement from insurers is being able to to transact. In a busy period, they will benefit by
demonstrate a clear commitment to transact, keeping requests simple and processes short.
evidenced by thorough preparatory work and a
clear price target. In a busy market, flexibility on
▶ AV I VA
timing is also helpful. We are strong supporters
of efforts to standardise broking data layouts We expect another record-breaking year for
and view the Mercer streamlined approach as a the bulk annuity market with deal volumes set to
positive step in this area. exceed £25bn. The composition of deals done in
2019 is likely to include several large pensioner
buy-ins and full scheme buyouts as funding
▶ JUST
levels improve and insurer pricing continues
As with 2018, a small number of huge deals will to be competitive. The steady flow of small to
largely dictate the bulk annuity market in 2019. If medium-sized deals continues too, both for
these all transact then the astronomic numbers pensioner buy-ins and full scheme buyouts.
you hear being suggested such as £40bn, or even
As always, schemes across all deal sizes need to
£50bn, could be in play. In Just’s core market (up
be well prepared; accurate and complete member
to £500m) it has been incredibly busy, resulting in
data, legally reviewed benefit specifications and a
a strong focus on how we select potential cases.
clear route to deal execution are as important as
We don’t have a minimum size; however, this is ever as these deals compete for limited capacity
clearly an important factor. We look for well- in the market.
prepared, engaged schemes who are being
assisted by advisers running well-defined,
efficient processes. Initiatives such as Mercer’s
buyout comparison service certainly help. We
have quoted (and indeed transacted) on several
schemes that we would have otherwise declined
due to the pricing efficiencies enjoyed by having
standardised data.
112. How real is the danger that the attractive pricing we’re currently seeing
increases towards the year end, e.g. if insurers’ appetites become satiated?
Is there innovation in the bulk annuity or reinsurance markets to increase
insurer capacity for 2019 and 2020?
▶ L&G ▶ R O T H E S AY
The level of demand we are currently seeing Pricing is driven by supply and demand. Should
for buy-ins and buyouts is unprecedented. Can insurers become full, pricing may rise, but
insurers continue to support this level of demand is likely to remain competitive by historical
for 2019 and beyond without there being upward standards. However, these effects may be
pressure on pricing? temporary as the higher returns should attract
more capital and increase capacity. Additionally,
We see the availability of assets with yields an increase in insurer capacity will come if there
sufficient to support current pricing as being are attractive investment opportunities or
the main potential constraint on future growth innovation in finding new areas/ ways to invest
in the market. We, along with other insurers, that satisfy matching requirements.
continue to make significant investment to
further improve our asset sourcing capabilities
and innovation in this space. ▶ AV I VA
The bulk annuity market has shown itself capable As we head towards the mid-year, pricing levels
of rising to the challenge of increasing demand continue to be competitive and lots of processes
in the past so who’s to say that won’t continue to attract multiple bidders. However, as H2 plays
be the case. We don’t view longevity reinsurance out, several large transactions could take place
capacity as being a significant constraint on the which may impact the appetite of some insurers
development of the market, although a growth and potentially push some deals out into 2020.
in global demand, particularly in the US, could That said, insurers continue to innovate and
impact pricing for UK insurers as reinsurance originate new assets, and reinsurers continue
capacity would be used elsewhere. to evolve, so action is being taken to meet the
increased levels of demand.
▶ JUST
It was not so long ago that conventional wisdom
dictated that the year-end was when pricing was at
its most attractive; however, I think it’s too complex
an equation for such generalisations. I can’t tell
you what Just’s pricing will be in six months’ time,
let alone that of seven very different insurers. That
having been said, the steady flow of higher yielding
assets from within our wider group, which we use
to support our bulk annuity pricing, should help us
maintain our current pricing levels.
Also worth noting, I would fully expect a well-
prepared scheme coming to market to achieve
better pricing than a scheme that has been rushed
for the sole purpose of hitting a particular time.
123. Does the ongoing uncertainty over Brexit create any significant threats or
opportunities for the bulk annuity market?
▶ L&G ▶ R O T H E S AY
There continues to be a lot of uncertainty about The uncertainty from Brexit makes us wary
what Brexit will mean for all markets, including of significant interest rate and currency
the bulk annuity market. movements. A UK recession triggered by the
uncertainty or by the outcome could result in yet
Any economic downturn could have an impact lower interest rates. Some buyouts which are
on pension scheme funding levels and the affordable could become unaffordable for funds
affordability of de-risking solutions. Corporate that are under-hedged on rates.
sponsors may also become distracted by other
pressing matters. On the positive side, ongoing uncertainty could
lead to a greater return for taking illiquidity
As with other key political events in the past, risk. This should improve the attractiveness of
market volatility might create short-lived bulk bulk annuity prices for those pension funds with
annuity pricing opportunities for the best liquid assets. Funds with illiquid assets will find
prepared pension schemes. completion more challenging.
Note that a lower rates environment can also
▶ JUST
increase capital requirements for annuity
I would be suspicious of anyone who tells you they providers and lead to more back-book
know for certain how (and when) Brexit will be opportunities which may draw some capacity
settled. It has dominated Westminster for three at bulk annuity insurers away from the pension
years during which time the bulk annuity market fund market.
has gone from strength to strength. Schemes
that are well prepared and ready to move at short
▶ AV I VA
notice could certainly benefit from a sudden
change in environment. Just transacted a case Brexit may cause short-term market volatility
shortly after the 2016 referendum, as conditions but for those well-prepared schemes, this
moved in their favour. To quote Game of Thrones’ could represent an opportunity too. Other
Lord Petyr “Littlefinger” Baelish, “chaos isn’t a pit, than that, the main threat is likely to come from
chaos is a ladder!” the uncertainty in trading conditions faced by
sponsoring employers and their willingness to
provide funding to facilitate transactions.
134. We’re continuing to see the volumes of individual DB to DC transfers
increase. Is this helping to bring down the level of pricing for deferred
pensioners? Are bulk annuity pricing levels sufficiently attractive compared
to alternative settlement routes?
▶ L&G ▶ R O T H E S AY
A DB to DC transfer is typically below the Bulk annuity contracts allow deferred pensioners
equivalent buyout cost such that an increase to transfer out, which generally releases capital.
in these transfers should improve buyout So pricing for deferred pensioners allows for
affordability at a scheme level. While DB to DC future transfers out, even if it is only allowed for
transfers would also reduce the size of the implicitly. So while the impact is hard to discern,
deferred pensioner liability, insurers will be an increase in expectations of the future uptake
concerned about selection risk so the impact of transfers is likely to have resulted in lower
on pricing for the remaining members could bulk annuity prices.
be impacted.
Provided that a transfer exercise results in
We would note that pension consolidator more transfers than the insurer assumes, then
vehicles are as yet untested. It is also not clear, the employer can make savings even if they
on the basis of publically available information, offer bigger transfer values than the insurers
that the pricing differential offered by these would pay. However, if the exercise results in
vehicles is as substantial as first thought. It a lower take up then offering higher transfers
is generally acknowledged that buyout with will increase the employers’ overall costs.
an insurer is the gold standard, and the best Employers should work out the breakeven
outcome for a scheme. transfer take-up rates before starting a
transfer exercise.
▶ JUST
▶ AV I VA
We have only relatively recently begun to quote
for deferred as well as current pensioner Like Mercer, we have seen a substantial increase
members. As we build up more experience in our in both transfer quotes and settlements. At this
deferred book, we’d expect the level of transfer stage, however, we do not expect this to result
activity to become a bigger influence on our in a significant impact on our deferred annuity
deferred pricing. pricing (particularly as many of those schemes
have already gone through an enhanced transfer
value exercise themselves), but we continue
to monitor transfer experience to see if the
evidence supports future price reductions.
14DEFINED BENEFIT PENSION C O N S O L I D AT O R S There has been growing interest in the development of DB pension consolidators. The question is increasingly how these arrangements should operate and when are they right for scheme members, rather than should they be allowed. Andrew Ward sets out more information on the consolidating vehicles, or “superfunds”, entering the market, the way they might work and how they differ from bulk annuities. 15
16
W H AT H A S B E E N H A P P E N I N G S O FA R ? W H AT A R E T H E A D VA N TA G E S O F
A SUPERFUND?
• Two main superfunds have launched for DB
pension consolidation in the UK - Clara and Superfunds may offer some employers and
the Pension Superfund - with a number of trustees an alternative way to discharge
others rumoured to be preparing to enter scheme liabilities at a cost potentially cheaper
the market than buyout.
• The Department for Work and Pensions (DWP) The Regulator’s control test, in its guidance
has carried out a consultation process on an for trustees, is that consolidation could make
authorisation and regulation framework for sense if the trustees can demonstrate that
superfunds, which closed on 1 February 2019 transferring the scheme to a consolidator will
enhance the likelihood of members receiving
• The Pensions Regulator has also provided full benefits.
guidance for trustees and employers who
are considering transferring their schemes WHO ARE THE SUPERFUNDS
to a superfund TA R G E T E D AT ?
• Following the DWP’s consultation, until the Consolidation offers the potential for members
subsequent regulatory framework is defined, to benefit from economies of scale, access
and until a pension scheme goes through the to a wider range of asset classes and better
Regulator’s clearance process with a view to scheme governance.
entering a superfund, there are uncertainties
around the details of how the superfunds will The key difference between a superfund and a DB
work in practice. master trust is that transferring to a superfund
may give a “clean break” for employers.
HOW DOES IT WORK?
Superfunds will not be appropriate for all
Consolidators are organisations that establish schemes. They are likely to be most attractive
shell companies (with DB pension schemes) to for schemes that are reasonably (but not very)
accept bulk transfers of assets and liabilities well-funded (for example more than 3-5 years
from other DB schemes, so that the transferring from buyout) where there is concern about the
employer no longer has any financial obligations long-term strength of the employer.
towards the transferred scheme.
HOW MUCH DOES IT COST?
Instead of being reliant on ongoing employer
covenant, member security comes from a For non-pensioner members, the cost is claimed
capital buffer provided partly by the price paid to be of the order of 10-15% less than a bulk
by the former employer and partly by investors annuity with a regulated insurer (there is likely
in the consolidator, who expect to profit from to be less of a differential for pensioners in
the arrangement. payment), but this will be tested by the first deals
to proceed. The cost is expected to be more than
a conservative technical provisions basis.
17ISSUES TO CONSIDER W H AT I S M E R C E R D O I N G ?
While consolidators intend to hold capital We have responded to the DWP consultation
significantly above typical scheme funding and will be able to help interested trustees and
arrangements, they are less secure than employers assess whether to use a superfund.
traditional insured annuities. Therefore,
covenant considerations will be key for any The Mercer team includes experts with
scheme where there is a transfer of risk from experience in scheme funding, de-risking,
the current employer to a consolidator. investments and assessing employer covenants.
In reality, there are a number of other ways of
achieving consolidation, such as shared service
models, asset pools, single governance products
and DB master trusts, as well as superfunds.
How do the Current DB Pension Consolidators Compare with Bulk Annuities?
Pension SuperFund Clara-Pensions Bulk annuity
Key features Profit sharing Bridge to buyout “Gold standard”
Solvency II reserving
Member benefits Maximise upside Full benefits (subject to Member security
buyout being achievable) Full benefits
Return of capital to investors 2/3 excess capital No release valve until buyout Dividends
Fund structure Single fund Sectionalised Insurer
Governance Trustee board Trustee board Insurer
Duration Run-off vehicle Until buyout achievable Run-off vehicle
Backstop security (Potentially) Pension (Potentially) Pension Financial Services
(for UK schemes) Protection Fund Protection Fund Compensation Scheme
Target transaction size Up to multiple £bn Up to c.£500m Up to multiple £bn
Cost Claims 10% to 15% less than Claims 10% to 15% less than Buyout
buyout for non-pensioners buyout for non-pensioners
Based on Mercer’s own research at the date of publication.
ANDREW WARD
Leader Risk Transfer and DB Journey Planning
+44 (0)207 178 3458
andrew.x.ward@mercer.com
18LONGEVIT Y TRENDS
Leah Evans and Phil Caine discuss the latest available tables
and models, and what they might mean for your scheme.
In the last half-decade, pension schemes K E E P I N G U P T O D AT E
have had mostly welcome news around
longevity, with the population data underlying The CMI model is updated annually based on
the commonly-used CMI mortality projections the latest general population data. The ready
showing a slowdown in improvements in availability of general population data means that
life expectancy. we can get a sneak preview of what impact the
CMI_2019 model may have once it is released in
In recent months we have had updates to the early 2020.
core elements most pension schemes use to
set mortality assumptions: first, the release As a starting point, we consider the experience
of the “S3” base mortality tables (reflecting we would need to see over 2019 to lead to no
pension scheme data collected between 2009 change in liabilities from the core model: this
and 2016); and, second, the latest annual would be around 540,000 reported deaths across
projection model, “CMI_2018”, incorporating 2019. Allowing for typical seasonality patterns
population data up to 2018. The release of (shown by the dark blue bars in the chart), this
the CMI_2018 model, in particular, resulted in would have meant 216,000 deaths in the first 20
headlines showing a reduction in weeks of the year. We’ve actually only seen just
life expectancy by up to 2.5%. over 206,000 deaths (as shown by the light blue
bars), i.e. 10,000 fewer than expected.
However, the headline figures are dependent
on the choice of parameters used for the model While this pattern may still change over the
and so the impact on individual schemes could remainder of 2019, it is currently looking more
be much lower (say 1% or less). This underlines likely than not that events of 2019 will lead to
the importance of sponsors and trustees taking higher views of longevity improvements and
the characteristics of their own scheme into hence of pension scheme liabilities – quite
account in choosing suitable assumptions. possibly the biggest increase since CMI
models were established in 2009.
Longevity Trend Diagram
15,000
ACTUAL DEATHS
10,000
5,000
0
4 8 12 16 20 24 28 32 36 40 44 48
WEEK
Expected deaths Actual deaths
19These annual variations become even more W H AT C A N W E D O A B O U T I T ?
significant depending on the choice of the
parameter in the CMI_2018 model that drives how In recent years, news on longevity has generally
reactive we want the improvements model to be provided a welcome dilution to the costs brought
to the most recent information (the “S-Kappa” by financial markets. It looks likely that events of
parameter). To illustrate the impact of the choice 2019 might not be so helpful, though it is too
of this parameter, we consider the potential soon to say whether this might develop into a
effect on liabilities if death rates continue at new longer-term trend.
current trends for the remainder of 2019.
It is imperative that trustees and sponsors
Under the CMI’s most recent “core” parameter understand the general volatility, and
(an S-Kappa of 7), a continuation of what we’ve understand recent longevity patterns, much
seen so far in 2019 would lead to typical liability more frequently than every three years to
rises around the 2% mark between their 2018 allow them to make informed choices.
and 2019 models.
While the recent updates to mortality
Under the previous core parameter (an assumptions have been helpful from a funding
S-Kappa of 7.5), expectations of early 2019 perspective, this latest data clearly shows that
improvements would have been more optimistic, volatility in mortality assumptions has not gone
so the evidence so far has been less of a away and puts the discussion on whether to
deviation from the model. The equivalent hedge longevity risk firmly back on the table.
liability increase would be a little under 1%.
LEAH EVANS PHIL CAINE
Head of Longevity Analytics Senior Associate
+44 (0) 207 178 5305 +44(0)161 837 6551
leah.evans@mercer.com phil.caine@mercer.com
20THE MARKET IN NUMBERS
Bulk Annuity and Longevity Swap Market Volumes 2005-2019 (To Early June)
45
40
35
30
25
20
£BN
15
10
5
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
YEAR
Longevity swaps Expected Insurer back-books Bulk annuities
Note: 2019 bulk annuity figures reflect deals announced so far this year (to early June 2019) but do
not include details of transactions not yet disclosed by insurers; hence the total bulk annuity volume
to date will be higher than illustrated.
Bulk Annuity Volumes by Insurer 2008-2018: £118bn
Legal & General Just
Pension Insurance Corporation Scottish Widows
Rothesay Life Canada Life
Aviva Phoenix
Prudential Others
Note: Rothesay Life market shares include their £12bn 2018 back-book transaction.
21Larger Publicised Deals Over 2019
Date Scheme / Firm Insurer Size £m Transaction Type
Jun-19 Rolls-Royce UK Pension Fund L&G 4600 Buyout
May-19 Marks and Spencer PIC 900 Buy-in
May-19 Marks and Spencer Phoenix 460 Buy-in
Apr-19 The Bank of America Merrill Lynch Scottish Widows 400 Buy-in
UK Pension Plan
Apr-19 Peugeot Advanced Pension Plan Scottish Widows 140 Buyout
Apr-19 QinetiQ Pension Scheme Scottish Widows 690 Buy-in
Apr-19 Laird Pension Scheme Rothesay Life 110 Buyout
Apr-19 Dresdner Kleinwort Pension Plan PIC 1200 Buyout
Mar-19 Howden Group Pension Plan L&G 230 Buyout
Jan-19 National Express UK Pension Rothesay Life Undisclosed Buyout
Scheme
Jan-19 Pearson Pension Plan L&G 500 Buy-in
Jan-19 Lafarge UK Pension Plan Munich Re Undisclosed Longevity swap
Jan-19 Co-operative Group PIC 425 Buy-in
22MEET THE TEAM
Mercer has a team of more than 50 experts in pensions risk
transfer, including the following at partner and principal level.
ANDREW WARD
DAVID BARKER
Leader Risk Transfer and
Principal
DB Journey Planning
+44(0)207 178 3418
+44 (0)207 178 3458
david.c.barker@mercer.com
andrew.x.ward@mercer.com
DAVID ELLIS MARTYN PHILLIPS
Head of UK Bulk Annuities Principal
+44 (0)113 394 7591 +44(0)148 377 7248
david.ellis@mercer.com martyn.phillips@mercer.com
SUTHAN RAJAGOPALAN
PATRICK LLOYD
Head of UK Longevity
Principal
Reinsurance
+44(0)207 178 3100
+44 (0)207 178 3669
patrick.lloyd@mercer.com
suthan.rajagopalan@mercer.com
LEAH EVANS ANDREW PUGH
Head of Longevity Analytics Principal
+44 (0) 207 178 5305 +44(0)161 837 6560
leah.evans@mercer.com andrew.pugh@mercer.com
JO CARTER CHRIS HAWES
Principal Principal
+44(0)161 837 6576 +44(0)207 178 7451
joanna.carter@mercer.com chris.hawes@mercer.com
23OVER 225 YEARS’ combined experience of
providing bulk annuity advice
JOHN MARTIN
Principal
+44(0)207 178 3112
john.s.martin@mercer.com
LEAD ADVISOR on around 400 BULK ANNUITY
TRANSACTIONS since 2006, with aggregate
premiums approaching £30BN, around 30%
MAURICE SPEER
of all UK buy-ins and buyouts
Principal
+44(0)28 9055 4225
maurice.speer@mercer.com
LEAD ADVISER on 6 of the 10 BUYOUTS OVER £1BN
(each of which started life as a buy-in), and lead
investment adviser on 2 of the other 4
RUTH WARD
Principal LEAD ADVISER on OVER 50% of the longevity
+44(0)207 558 3036 swap transactions in the UK over the last
ruth.ward@mercer.com 5 years. We are the only company to have
advised on all types of longevity swap
structures in the market
RUSSELL LAVER
Principal
+44(0)131 203 2857
russell.laver@mercer.com
IMPLEMENTED more than 400 member options
exercises in last 4 years
24I M P O R TA N T N O T I C E S This contains confidential and proprietary information of Mercer and is intended for the exclusive use of the parties to whom it was provided by Mercer. Its content may not be modified, sold or otherwise provided, in whole or in part, to any other person or entity without Mercer’s prior written permission. The findings, ratings, and/ or opinions expressed herein are the intellectual property of Mercer and are subject to change without notice. They are not intended to convey any guarantees as to the future performance of the investment products, asset classes or capital markets discussed. Past performance does not guarantee future results. This does not contain investment advice relating to your particular circumstances. No investment decision should be made based on this information without first obtaining appropriate professional advice and considering your circumstances. Information contained herein has been obtained from a range of third-party sources. Although the information is believed to be reliable, Mercer has not sought to verify it independently. As such, Mercer makes no representations or warranties as to the accuracy of the information presented and takes no responsibility or liability (including for indirect, consequential or incidental damages) for any error, omission or inaccuracy in the data supplied by any third party. © 2019 Mercer LLC. All rights reserved. Issued in the United Kingdom by Mercer Limited, which is authorised and regulated by the Financial Conduct Authority. Registered in England No. 984275. Registered Office: 1 Tower Place West, Tower Place, London, EC3R 5BU For further information, please contact your local Mercer office or visit: www.uk.mercer.com GRAPHICS NO: 280522
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