March 2018 Overview of the pension risk transfer market

Transcription

1 March 2018 Overview of the pension risk transfer market 2018 market update which gives our new business volumes for 2017 plus commentary on market activity and trends.

2 Market overview 2017: Looking back While 2017 lacked the big headlines or jumbo transactions of previous years there was a tremendous amount of activity and competition playing out beneath the surface. New business volumes Legal & General UK bulk anunity business written in During 2017 we wrote 31 UK bulk annuity policies and received 3.4 billion of premium in respect of new business, including balancing premiums. This compares to 17 bulk annuity policies and 6.3 billion of premium received during 2016 which included the 2.9 billion annuity back-book that we purchased from Aegon. Total buy-in and buyout volumes across the UK are expected to top 10 billion for the fourth year running. The year was dominated by a steady flow of mid-sized transactions with the largest being 1.2 billion which was split equally between two insurers. The introduction of a new entrant and other insurers in the market developing their offerings ensured there was a healthy amount of insurer capacity available to pension schemes, resulting in attractive pricing and a very competitive environment. The success and track record of delivering for pension schemes in 2017 has set our market up well to continue to help trustees and sponsoring companies meet their pension obligations and manage down their pension risk. WE MAINTAINED A STRONG MARKET SHARE IN 2017 We wrote 3.4 billion in buy-in and buyout business with UK pension schemes in 2017 and we remain committed to delivering for pension schemes as they look to transfer their risk to insurance companies. This is the third time in four years that we have written in excess of 3 billion. Based on latest estimates, the total volume of business written in 2017 is expected to be just over 11 billion, demonstrating a thriving market with continuing demand from pension schemes for de-risking solutions. SUCCESS IN THE US Our US business goes from strength to strength. In 2017 we wrote more than $700 million of new business, bringing the total we have written since entering the market in 2015 to more than $1.6 billion is already shaping up to be another successful year. THE RETURN OF LONGEVITY INSURANCE Around 6.4 billion of liabilities were covered by longevity insurance in Reinsurers have continued to offer attractive pricing which is taking account of the recent slowdown in life expectancy improvements. We executed an innovative 800 million longevity insurance transaction in 2017 with the Scottish Hydro-Electric Pension Scheme, part of the SSE Group, whereby we intermediated longevity risk transfer between the scheme and the reinsurance market using a UK-based pass-through structure. Bulk annuity sales m- 100m 100m- 1,000m Total size ( m) 640 2,765 Average size of quote ( m) Total number of transactions : Looking forward 2018 is shaping up to be a positive year for the bulk annuity market. Our pipeline indicates increased demand from pension schemes compared to previous years as well as speculation of more insurer annuity back-books coming to market. While some of this demand is likely to be driven by the recent increases in interest rates and resulting improvements in pension scheme funding levels, it is mainly a function of schemes continuing to work through and make progress in their journey plans. Below we have detailed some points we believe are important for 2018: Planning and preparation remain the keys to success. We encourage pension schemes to engage early and collaboratively in order to get the best result from insurers. Insurers are more likely to allocate resources, assets and capital to schemes that are willing to provide a target premium and a commitment to transact at that target. In a year where demand in the market is high, showing commitment in the early stages may prove to be vital. Buy-ins and buyouts are becoming increasingly more affordable for pension schemes. Affordability is being driven by higher interest rates and good investment returns. Many of the macro headwinds that the market has faced over the past year and a half, particularly since the EU Referendum, have eased somewhat. We have also seen reinsurers begin to take account of the slowdown in longevity improvements. These factors, coupled with the accelerated maturing of schemes due to the continuing closure of schemes and transfers out, mean that pension schemes are moving closer to the point at which they can transfer risk to an insurance company through either a buy-in or buyout. Increased capacity in the bulk annuity market. As well as new entrants coming into the market in the past few years, many insurers have expanded their offering to meet pension scheme needs. Even if the back-book transactions materialise, we anticipate there being significant capacity available for pension scheme transactions. However, if the demand is greater than expected it may result in insurers picking their battles on where to allocate their resources which means we could see fewer insurers competing for each transaction. 2 3

3 Q&A with Laura Mason CEO of LGR Institutional Laura Mason joined Legal & General Retirement (LGR) on 1 January 2018 as CEO of LGR Institutional. As she steps into her new role we asked her a few questions to get an insight into her background, as well as her thoughts and views on the de-risking market. Investing in the UK to back our pension promises We have made a commitment to invest in areas such as homes, urban regeneration, clean energy and small business finance, driving economic growth and making a positive difference to the UK s infrastructure. A selection of recent examples include: Leeds Edinburgh HOW DO YOU PLAN TO USE YOUR PREVIOUS EXPERIENCE IN YOUR NEW ROLE? When we write new bulk annuity business we have to make investments to back the pension promises that we take on. When doing so, we invest in corporate bonds which provide important financing to companies and 600 million investment including redevelopment of Headingley stadium and Legal & General Homes modular housing factory 200 million New Waverley development moving 2,900 civil service jobs into the heart of the Old Town increasingly also in direct investments, such as infrastructure, housing and urban regeneration. Our ability to deliver for pension schemes is, more than TELL US ABOUT YOUR BACKGROUND I joined Legal & General in 2009 and was responsible for our annuity investment strategy. More recently, I oversaw direct investments in areas such as property and anything, driven by our ability to find good investments. My strong links with Legal & General s Direct Investments team will be invaluable. Working closely with other parts of the business to ensure sufficient direct investments are sourced to support the business we want to write, as well as ensuring that we utilise these investments in the most efficient way, could really make the difference this year. West Midlands 400 Bombadier trains increasing the fleet size by 25%, part of 550 million of investment in UK transport infrastructure Newcastle 350 million Newcastle Science Central development, a major UK hub for scientific research, and technology businesses infrastructure in our capital division. There is another angle to these investments that I am really passionate about. When we invest in projects, such as the regeneration of Central Square in Cardiff Cardiff East Anglia and the London Gateway Port, we are making a difference in people s lives and in our economy. By choosing to invest in this way we are helping to lay the foundations upon which the younger generations can drive forward our future economic growth. 400 million Cardiff Central Square regeneration. Set to create 10,000 local jobs and new 120 million HQ for BBC Wales 665 Bombardier trains to increase train frequency and reduce passengers journey times WHAT DO YOU THINK THE MAIN CHALLENGES WILL BE IN THE BULK ANNUITY MARKET THIS YEAR? The increase in demand that we are seeing from pension schemes may mean that insurers become more selective on what they price on. It is important to me that we continue to deliver for pension schemes and truly be a long term partner to them. Therefore I would encourage schemes to engage early with us; those that are well prepared are more likely to succeed this year. Southampton 1,104 unit student accommodation development in the city centre London 250 million invested in new London Gateway Port the UK s first new port for over two decades 4 5

4 Q&A with Laura Mason (continued) Contact us CORE BUSINESS TEAM WHAT DO YOU FEEL LEGAL & GENERAL S KEY STRENGTHS ARE? Legal & General has over 30 years experience in the industry. We issued our first buyout policy in 1987, and since then we have continued to excel through continuous innovation and ensuring that we evolve with pension scheme needs. Our solutions are flexible and can be tailored to suit different circumstances and this, in my At Legal & General we are very ambitious and I think we have demonstrated our ability to perform consistently in this market. In the past five years we have secured more than 15 billion of liabilities and insured over 80,000 pension scheme members. I think this is a powerful testament to what this market is about making a positive difference to people s financial security and their futures. Costas Yiasoumi Head of Core Business costas.yiasoumi@landg.com Julian Hobday Frankie Borrell frankie.borrell@landg.com Gavin Smith opinion, is one of our key strengths julian.hobday@landg.com gavin.smith@landg.com We are committed to the pension risk transfer business for the long term our strong heritage, brand and financial strength makes us a safe and secure de-risking partner for pension schemes. CLIENT SOLUTIONS TEAM ORIGINATION TEAM Finally, our expertise goes far beyond the successful execution of a transaction. Our fantastic client services team works with trustees and scheme administrators from the outset and is on hand at every step to manage the transfer of any membership data, payroll or administration. All of our administration is carried out in-house in the UK in our customer service hubs in Cardiff and Hove. Last year we were awarded global standard accreditation for the service we provide to our customers from the Customer Contact Association, which is the industry benchmark for customer service excellence. Trustees can be assured that their members will be well looked after by Legal & General. HOW DO YOU SEE THE BULK ANNUITY MARKET IN 2018 AND WHAT ARE YOUR GOALS THIS YEAR? Recent headlines on the future of Defined Benefit (DB) pensions serve as a reminder of how challenging pension schemes have become for the companies that support them. However, I think it is important not to forget that all of the work trustees, sponsoring companies, advisers and insurers are doing in our market represents a genuine solution to the so-called pensions crisis. In 2018 and beyond I d like to see this continue; insurers in the UK are well positioned to help manage the risks of legacy DB schemes and play an important role in the retirement provision of the future. When we think about how we as an industry continue to deliver for pension schemes, we should not lose sight of the opportunity that sits out there for us all. There are still 2 trillion of defined benefit pension liabilities on UK companies balance sheets. We ve now grown to a point where the market is securing billion of pension liabilities each year and the fact that we are able to secure this volume of members benefits is not only a great result for the pensions industry but also for UK plc. We must continue to work together collaboratively to deliver these great results for pension schemes and members. Chris DeMarco Managing, UK Pension Risk Transfer chris.demarco@landg.com STRATEGIC BUSINESS TEAM Russell Lee Head of Client Solutions russell.lee@landg.com Pretty Sagoo Head of Strategic Business pretty.sagoo@landg.com Dominic Moret dominic.moret@landg.com Dave Watt david.watt@landg.com John Towner Head of Origination john.towner@landg.com Kai Hoffmann kai.hoffmann@landg.com Aysha Patel aysha.patel@landg.com Matt Wilmington matt.wilmington@landg.com We may record and monitor calls. If you are contacting us by please remember not to send any personal, financial or banking information because is not a secure method of communication. 6 7

5 CONTACT US legalandgeneral.com/prt Call charges will vary. We may record and monitor calls. If you re contacting us by please remember not to send any personal, financial or banking information because is not a secure method of communication. Important information This is not an advert for pension members or employees. It s intended for professional financial advisers and pension trustees classified as Professional Clients and should not be relied upon by pension scheme members, employees, or any other persons. Legal & General Assurance Society Limited. Registered in England and Wales No Registered office: One Coleman Street, London EC2R 5AA. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.