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Bulk annuity market set for expansion as Aviva returns, LV= looks to enter

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General insurer, Aviva is expected to quadruple its limit on bulk annuity deals to £200m (€244m) as LV= is set to enter the market for the first time.

Both moves come after the UK government scrapped the forced annuitisation of defined contribution (DC) pots, leading to fears of a drop-off in the individual market.

Aviva in 2012 announced it would reduce its writing capacity in the bulk annuity market to £50m, having enjoyed 20% of the market (c.£2bn) in the previous two years.

However, as last month’s Budget heralded a potential decline in individual annuity sales - by as much as three-quarters according to insurer Legal & General - Aviva and LV= have begun shifts into the potential £20bn a year bulk space.

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Sources close to the market confirmed to IPE Aviva’s intention to begin pricing single buy-in and buyout deals of up to £200m of liabilities.

Any single deal of this size would outstrip the insurer’s total business for 2013.

According to consultancy LCP, Aviva wrote £143m in bulk annuity business in 2013 and £187m in the year before.

In the 2010-11 financial year, before its retreat from the market, the insurer wrote nearly £2bn in business.

A statement from Aviva said the company was still working through the changes announced in the Budget.

“Our business is generally targeting the smaller end of the market [up to £50m], but we will write larger business where there is a clear business case to do so,” it added.

Two sources also detailed conversations with LV= regarding its entry into the bulk market, and the medically underwritten space.

One source said: “LV= is looking at the market and spoken to people about offering bulk annuity deals.”

A statement from LV= said: “We review our business regularly. We’re still looking at the fall-out from the Budget, and making sure we can still offer individual propositions that we think the market requires.”

The move by the insurers is only the beginning of a trend according to several market commentators, in stark contrast to recent years, which saw Aviva scale back its writing, consolidation of Lucida into Legal & General, and a retreat from US insurer, MetLife.

As economic conditions led to better pricing, business levels in the bulk annuity space reached record levels in 2013, with the current year expected reach £20bn, according to LCP.

Improved scheme funding levels on the back of equities and rising yields have also led UK pension funds and sponsors to look at bulk annuity options for de-risking.

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