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UK expects another strong pension risk transfer transaction in 2021

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Charlie Finch, partner of UK consultant Lane Clark & ​​Peacock LLP in London, said the 2020 deal price was very attractive for pension funds and sponsors guarantee a 10% discount on deals.

The drop in prices occurred as credit spreads widened at the peak of the coronavirus pandemic.

But despite falling credit spreads, Finch added that “prices are still good at a historical level,” adding that the company is trading between £500 million and £1 billion.

Finch added that while last year’s pricing provided good value for money, some pension funds were unable to take advantage of favorable market conditions at the time due to low funding levels. With 12 months ahead, the DB plan is better funded and has more capacity to mitigate risk, even if prices are not exceptional, he said.

Finch also believes that acquisition opportunities have steadily improved over the past few years as the pace of lifespan growth slowed, despite the UK’s withdrawal from the European Union and the economic background of the coronavirus pandemic.

Another source added that insurers’ willingness to cover the deferred participant’s debt is an important factor to further support the UK risk transfer market in 2021.

Mike Edwards, partner of Aon PLC in London, said the UK insurance market has matured enough to support a larger number of full acquisitions in recent years. Edwards has built the ability over the past few years to provide insurance contracts that cover the liability of retirees as well as deferred participants for those who have recently entered the supplier market, such as Phoenix Group Holdings PLC.

Similarly, it added that more reinsurance companies are now developing the ability to take risks associated with deferred participant debt. “This partially reflects the recognition that the entire scheme trading market, including postponement, is expected to grow as more pension schemes reach their targets,” he said.

Some consultants estimate that the total transaction value in 2021 will be higher than in 2020, reaching up to £60 billion. This is due to pension funds entering the market for the first time, choosing a capital-assisted journey plan, or performing deferred long-term swaps. Participant.

For example, on March 18th, London’s AXA Pension Scheme conducted a £3 billion longevity swap with Hannover Re Holdings (UK) Ltd., targeting plan participants who have not yet retired.

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