“Busyness in the Risk Transfer market is at an all-time high, with around £25bn of bulk annuity transactions expected to be secured in the first half of 2023. To deal with this level of activity and to enable them to secure a successful transaction, the way in which pension schemes approach the market will have to adapt,” suggests Lara Desay, Partner and Risk Transfer Specialist at Hymans Robertson.
In March, analysts at Moody’s suggested that the UK’s Life & Health insurers would continue to benefit from sustained bulk purchase annuities growth at still attractive margins “in 2023 and beyond.”
For Q1 2023, Legal & General Retirement America reported around $6 billion in total market volume for the US pension risk transfer (PRT) market, surpassing the previous years record of $5.3 billion.
More recently, Legal & General Retirement Institutional, the UK bulk annuity division of Legal & General, announced it had made strong progress in multiple sectors, including PRT, individual annuities, and US protection, transacting £6.8 billion of PRT year-to-date (6th July 2023) and experiencing a notable rise in pension schemes approaching the insurance market.
Hymans Robertson’s Lara Desay continued, “For small schemes – those below £100m – approaching on an exclusive basis is now becoming a pre-requisite.
“Setting an appropriate price target relies heavily on having an all-encompassing view of market activity to understand where current market pricing lies and what adjustments are appropriate to reflect a scheme’s profile.”
Desay suggested that having an adviser with a strong understanding of the current market and knowing who is pricing competitively at any given time is important.
Earlier this week, London-based pension consultancy firm, Lane Clark & Peacock, successfully advised on a £90 million bulk purchase annuity transaction between Just and the Hammerson Group Management Limited Pension and Life Assurance Scheme.
Meanwhile, back in April, Aviva completed a £400 million bulk purchase annuity buy-in transaction with the trustees of the DB (UK) Pension Scheme.
Desay went on, “The segment of the market for medium-sized schemes – between £100m and £1bn – is likely to garner strong interest from a wide range of insurers.
“A two-round process may still be attractive at this size, but some insurers may prefer this to be reduced to a single round to “cut to the chase” and reduce the burden on their pricing team.
“And the market for large schemes is seeing its largest ever flow of transactions over £1bn in size, around 20 deals at this size have already transacted or, are being quoted on in the market this year.”
According to Desay, this means securing insurer participation is “no longer the given it once was.”
Key to getting strong participation is having an adviser that is able to demonstrate clarity and certainty over objectives and timescales, she added.
Desay concluded, “As with all things pensions related, there is rarely an ‘off the shelf’ solution. Each scheme will have its own nuances and some adjustments to processes may need to be adopted for transactions to be successful. But being willing and alert to making adjustments will be vital.”
