Trend of bulk annuity ‘mega deals’ set to continue: Willis Towers Watson

As the appetite for bulk annuity ‘mega deals’ continued through 2018, four factors are set to determine what schemes, from large to small, need to consider as they weigh up their de-risking options for the year ahead, according to Willis Towers Watson’s 2019 de-risking report.

Last year saw unprecedented bulk annuity transactions activity, with significantly more than £20 billion of bulk annuities transacted, and this ongoing trend is likely to impact the market in 2019.

But as the bulk annuity ‘mega deal’ trend looks set to continue, smaller schemes are potentially at risk of missing out on attractive pricing as insurers prioritise resources to large-scale, high value deals, according to the report.

Smaller schemes will need to work hard to demonstrate ease of doing business – this includes proving their is commitment to the transaction from both the trustee and the sponsor, articulating a clear pricing target to the market and providing clean and complete data. Without these elements in place, large deals will dominate, the report suggests, but credible alternatives to a full scheme buyout are likely to cement their footprint in the market this year.

Some examples of these include: commercial consolidators, a DB master trust where the employer covenant is replaced by a capital buffer; non-traditional insurance products, insurers currently providing bulk annuities, innovating to improve affordability for schemes; and fiduciary asset management, the delegation of investment implementation to a professional provider.

“As schemes have more choice than ever on their preferred de-risking solution, they should think carefully about the right destination given their funding plan and sponsor covenant,” the report said.