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H E A L T H W E A L T H C A R E E R
M E R C E R W E B C A S T
E V O L U T I O N O R R E V O L U T I O N W H Y B U Y O U T R E M A I N S R E L E V A N T
P O S T B R E X I T
27 September 2016
ALAN BAKER UK DB Risk Leader
DAVID ELLIS UK Leader, Bulk Pensions
Insurance Advisory
MARTYN PHILLIPS Partner, Bulk Pensions
Insurance Advisory
© MERCER 2016 1
A G E N D A
IMPACT OF BREXIT 2
UNCOVERING OPPORTUNITIES 3
Working in
partnership
with you LESSONS LEARNT 4
SUMMARY AND QUESTIONS
Working in
partnership
with you CURRENT STATE OF UK BUYOUT MARKET 1
© MERCER 2016 2
U K P E N S I O N B U Y O U T M A R K E T
Source: Mercer’s UK DB Bulk Pensions Insurance - Market Review
© MERCER 2016 3
T H E I M P A C T O F B R E X I T
INSURER
APPETITE
MARKET
YIELDS
EXCHANGE
RATE
ASSET
HEDGING
© MERCER 2016 4
T H E M A R K E T S
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Jan 2016 Feb 2016 Mar 2016 Apr 2016 May 2016 Jun 2016 Jul 2016
%
Global bond yields
US 10 y UK 10 y Japan 10 y Germany 10 y
Source: Thomson Reuters Datastream
70
80
90
100
110
120
Dec 2015 Jan 2016 Feb 2016 Mar 2016 Apr 2016 May 2016 Jun 2016 Jul 2016
Global Stock Market Performancelocal currency, indexed to 100 at 1 January 2016
FTSE All-Share MSCI EM MSCI USA MSCI Europe ex UK MSCI Japan
Source: Thomson Reuters Datastream
1%
1.5%
2%
4%
5%
6%
7%
8%
9%
Jan 2016 Feb 2016 Mar 2016 Apr 2016 May 2016 Jun 2016 Jul 2016
Op
tio
n A
dju
sted
Sp
read
Op
tio
n A
dju
sted
Sp
read
Credit Spreads
Barclays Capital Global High Yield BofA Merrill Lynch Sterling Non Gilts
Source: Thomson Reuters Datastream
1.1
1.2
1.3
1.4
1.5
1.6
1.1
1.2
1.3
1.4
1.5
1.6
Jan 2016 Feb 2016 Mar 2016 Apr 2016 May 2016 Jun 2016 Jul 2016
Ind
ex
Sterling exchange rates
GBPEUR GBPUSD
Source: BoE, Thomson Reuters Datastream
© MERCER 2016 5
I N S U R E R P R I C I N G I S H A R D T O P R E D I C T A C C U R A T E L Y
ASSUMING NO CHANGES IN FINANCIAL CONDITIONS
N E W E N T R A N T
P R I C I N G L O W E R T O
A T T R A C T B U S I N E S S
I N S U R E R H A S
I N C R E A S E D
A P P E T I T E F O R
B U S I N E S S
I N S U R E R H I T S
S A L E S T A R G E T
L E A D I N G T O
R E D U C E D A P P E T I T E
I N S U R E R K E E N
T O W I N B U S I N E S S
B E F O R E I T S
Y E A R - E N D
N E W E N T R A N T ’ S
P R E M I U M
“ N O R M A L I S E S ” 1 0 %
P R I C I N G R E C E I V E D O V E R S E V E R A L M O N T H S
© MERCER 2016 6
W H A T ’ S N E E D E D I S A W A Y T O S O U R C E I N F O R M A T I O N T O
E M P O W E R Y O U T O A C T D E C I S I V E L Y
CREATE PLAN-
SPECIFIC
DISCLOSURES
COMMENCE
MONITORING
PHASE
AN INSURER
SUGGESTS
WAYS TO
IMPROVE VALUE
PRICING HITS
TRIGGER
TARGET
PRICE
ACHIEVED
DEAL
EXECUTED
INSURERS’ INITIAL
PRICING NOT RIGHT
SO NO DEAL DEAL
EXECUTED
ACCEPTABLE
PRICE OBTAINED
CREATE PLAN-
SPECIFIC
DISCLOSURES
P R I C I N G O P P O R T U N I T Y
M I S S E D B Y
T R A D I T I O N A L
A P P R O A C H
M E R C E R P E N S I O N R I S K E X C H AN G E ®
© MERCER 2016 7
A R E Y O U A L W A Y S F O C U S E D O N T H E A C T I O N T H A T
D E L I V E R S W H A T Y O U R E A L L Y W A N T ?
ASSETS
FUNDING DEFICIT
ADDITIONAL
BUYOUT DEFICIT
£500M
£75M
£75M
£25M PA
ASSETS £250M
£40M
£25M
£335M
© MERCER 2016 8
T H E R E A L S I Z E O F T H E ( A D D I T I O N A L ) C A P I T A L
I N J E C T I O N T H A T P E R M I T S B U Y O U T A N D W I N D - U P M I G H T
B E M U C H S M A L L E R T H A N R E P O R T E D
BUYOUT
DEFICIT
PLAN
CONTRIBUTIONS
DATA
IMPROVEMENTS
MEMBER OPTIONS
PROGRAMME
PRICE
NEGOTIATION
REAL BUYOUT
CAPITAL
INJECTION
© MERCER 2016 9
W H A T W E H A V E L E A R N E D F R O M T H E F I V E £ 1 B N + B U Y O U T S
M E R C E R H A S L E D ( A N D A P P L Y T O S M A L L E R P L A N S )
IT CAN BE DONE QUICKLY,
OFTEN IN LESS THAN A
YEAR.
ACHIEVABLE AND
PRACTICAL TO RE-
ENGINEER A DB PENSION
PLAN’S FINANCES TO
SUPPORT THE OUTCOME
YOU WANT.
WIN-WIN-WIN SCENARIOS
ARE ATTAINABLE FOR
THE SPONSORING
EMPLOYER, THE TRUSTEE
AND PLAN MEMBERS.
THE PLAN’S FINANCES
ARE NOT SET IN STONE
AND MIGHT NOT BE WHAT
HAS BEEN FUNDED AND
ACCOUNTED FOR.
MEMBERS VALUE CHOICE
AND SIGNIFICANT
PROPORTIONS WILL TAKE
A LUMP SUM INSTEAD OF
THE BENEFITS IN
ANNUITY FORM.
INTERNATIONAL
COORDINATION AND
INTEGRATION IS
ACHIEVABLE AND CAN
ADD SUBSTANTIAL VALUE.
1. 2. 3.
4. 5. 6.
© MERCER 2016 10
I S Y O U R U K P L A N A L R E A D Y I N A G L O B A L
C O M P E T I T I O N F O R R E I N S U R A N C E C A P A C I T Y ?
© MERCER 2016 11
Q U E S T I O N S ?
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TO “ALL PANELISTS”
FEEDBACK Please take the time to fill out the
feedback form at the end of this webcast
so we can continue to improve. The
feedback form will pop-up in a new
window when the session ends.
ALAN BAKER UK DB Risk Leader
+44 20 7178 5531
@notjustpensions
DAVID ELLIS UK Leader, Bulk Pensions
Insurance Advisory
+44 113 394 7591
MARTYN PHILLIPS Partner, Bulk Pensions
Insurance Advisory
+44 148 377 7248
© MERCER 2016 12 12
