The risk transfer market in the U.K. will continue to flourish in 2021 as an increase in U.K. long-term interest rates in the first quarter resulted in improved funding levels for many defined benefit funds, consultants said.
Over the course of 2021, consultants expect that at least £30 billion ($41.6 billion) in risk transfer deals will materialize across the U.K. The ultimate opportunity set could be closer to the £60 billion mark, conditional upon some plan sponsors moving ahead with exceptionally large longevity swaps and buy-in transactions or alternative strategies such as capital-backed journey plans, consultants said.
But the year will belong to buyouts, consultants believe, as insurance companies have been improving their capabilities and capacity to insure the liabilities linked to plan participants that are yet to retire, known as deferred participants.
"My expectation is that 2021 will be another busy year … It is hard to predict (exact) volumes, (which) can be swayed one way or the other. My best guess today is that we will see similar volumes to last year … in excess of £30 billion," said James Mullins, partner and head of risk transfer at U.K. consultant Hymans Robertson LLP in Birmingham, England, referring to the buy-in/buyout opportunity set.
The value of buy-ins and buyouts in 2020 was £31.8 billion, while a record £24.2 billion in longevity swaps drove the total deal value to £56 billion.
Some of the largest 2020 deals were:
- A £5 billion longevity swap conducted by Barclays Bank U.K. Retirement Fund, Redhill, England, with Reinsurance Group of America Inc. in December.
- A £3 billion longevity swap conducted by BBC Pension Scheme, London, with Zurich and Canada Life Reinsurance in December.
- A £2 billion buy-in agreed by Old British Steel Pension Scheme, Glasgow, Scotland, with Pension Insurance Corp. in October.
- A £1.1 billion buy-in conducted by Maersk Retirement Benefit Scheme, Ware, England, with Legal & General Assurance Society Ltd. in December.