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U.K. bulk annuity transactions up 60% in 2016 as longevity deals fall

U.K. bulk annuity transactions exceeded £19.7 billion ($24.2 billion) in 2016, shows a market research study by Aon Hewitt, up 60% from £12.3 billion in 2015.

The study said Solvency II rules, which affect insurance companies in Europe and sets minimum capital requirements, did not hurt the bulk annuity market to the same extent as the longevity deal market. Longevity deals totaled £2.6 billion, down 73% from £9.7 billion the year before.

Aon expects to see deal volumes in bulk annuities exceed £20 billion this year.

The £19.7 billion was split into £10.2 billion of U.K. pension plans securing a buy-in or buyout and the remaining £9.5 billion coming from transferring annuities to other insurers.

“It was the bumper year we expected in the bulk annuity market, proving that the regulatory changes brought in by Solvency II were not going to curb enthusiasm for insurance-based solutions. But it was a different story in the longevity market where new mortality data and low gilt yields presented pricing challenges for schemes looking to transfer risk,” Martin Bird, senior partner and head of risk settlement at Aon Hewitt, said in a news release.

“However, one aspect that remains unchanged is the need for schemes to be prepared to move when the moment — and therefore the pricing — is right. While that still means ensuring you have clean data, we are now also seeing schemes attacking the issue of derisking from another angle, chiefly by liability management exercises or introducing flexible retirement options. These approaches are rapidly growing in popularity and can make a key contribution to schemes reaching their end-goal,” Mr. Bird said.