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Retirement income sales at the FTSE 250 life insurer Just Group more than doubled to £1.9bn in the first six months of the year, as soaring gilt yields fuelled corporate pension deals and sales of individual annuities.
Just completed 35 corporate pension deals during a record first half, the company said in a trading update released on Tuesday. In such transactions, companies offload some or all of their pension liabilities, and the assets backing them, to the insurer. That was up from 14 deals in the first half last year and included its biggest to date valued at £513mn.
David Richardson, chief executive, said the defined benefit business was going from “strength to strength” and its quotation service, which gives prices for trustees on corporate pension deals, had growing demand.
Like bigger peers such as L&G, Just has a record pipeline of such deals in what is expected to be a record year for the market. Experts estimate that about 1,000 corporate pension schemes are now well funded enough to be offloaded to an insurer, after rising interest rates closed the gap between their assets and liabilities. The surge in dealmaking has prompted the Bank of England to call for moderation from insurers in the pace of transactions.
Just’s shares rose 6 per cent in morning trading in London.
The changing monetary environment has also breathed life back into the market for individual annuities, whose rates reflect government bond yields. Years of low rates had suppressed demand for such products.
Just said sales of individual guaranteed income products were now at their strongest since the introduction of new pension freedoms was announced in 2014. They were up 54 per cent year on year to £470mn. Higher rates have made them “significantly more attractive to financial advisers and customers”, the insurer said.
The group said the imminent introduction of the Financial Conduct Authority’s new consumer duty rules — which require insurers and other financial companies to demonstrate how they are providing good outcomes for customers — would further encourage sales of guaranteed products such as annuities.
“The combination of higher interest rates and new FCA rules should further encourage advisers to re-examine the attractiveness of guaranteed solutions, especially for older clients,” said Richardson.
Analysts at RBC Capital Markets called the results a “step-change in demand for both bulk and retail annuities” and upgraded its earnings forecasts.
Jefferies said the top-line growth was “impressive”, and Just should “quite easily achieve” its full-year guidance of 15 per cent growth in underlying operating profit.