The three insurance firms still active on the Dutch market for pension buyouts estimate a volume of approximately €20-30bn in deals to come to market until 2027.
ASR, a relative newcomer that is yet to conclude its first buyout transaction, expects to conclude €8bn worth of buyout deals with company pension funds over the next few years, the firm revealed in a recent Capital Markets Day it organised at its main office in Utrecht.
This would give the insurer a market share of about a third, as ASR expects another €20-30bn in pension assets to be insured until 1 January 2028, as this is the last possible date on which pension funds can move to the new defined contribution (DC) pension system.
After insurance firm Lifetri departed from the buyout market earlier this year, three firms remain active. Besides ASR, these are NN Group and Zwitserleven. NN, which also recently gave an update to its investors, declined to give a buyout target but estimates the size of the buyout market at about €25bn. Zwitserleven gave a similar estimate when asked by IPE.
This means the insurers expect the ‘big wave’ of buyouts to be yet to come. Between 2020 and 2024, only a combined several billion euros in deals were made in the Netherlands.
Meanwhile, in the UK, a new insurance company is entering the UK buyout market, where volumes of up to £600bn are predicted over the next 10 years.
12% return
Both ASR and NN told investors they expect a double-digit return on buyouts. ASR wants to make at least a 12% return on every buyout deal it closes with a pension fund. The insurer expects buyout deals to “increase profitability thanks to excess returns and capital release”.
For its part, NN expects a “double-digit return” on buyouts. Zwitserleven would not disclose a return forecast. Zwitserleven’s parent company Athora is the only one of the three insurers that is not listed.
Buffer
The return requirement cited by the insurance companies refers to the return on the buffer of insured pension assets. Insurers only need to hold part of the insured pension assets in the form of a buffer (around 20-25% of the insured capital on average), which they can invest to earn additional returns.
An insurer that is only required to hold a quarter of a given insured capital as a buffer will need a 5% return on the buffer to realise a 20% total return on a buyout.
In principle, insurers invest the buffer largely in listed and unlisted debt. In its investor presentation, ASR states that buyouts allow “a higher allocation to illiquid investments”, leading to “improved returns”.
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