Consultancy LCP is expecting there will be another new entrant insurer to the UK buy-in/out market by the end of the year.

In the past nine months three new entrants joined the market: M&G, Royal London and Utmost. LCP expects the new entrants to transact relatively modest figures initially as they scale up their operations.

However, it said the new entrants have the potential to add material capacity to the market over time although they will be subject to many of the same supply-side constraints the existing insurers have been navigating. They will compete for the same experienced personnel, reinsurance capacity, post-transaction resource and attractive assets with which to back their pricing.

Schemes exploring run on

Last year LCP projected £400bn to £600bn of buy-in/out transactions over the next decade, with the range reflecting different scenarios for the number of schemes choosing to insure.

LCP pointed out that there are early signs that some schemes are increasing their focus on wider endgame options. LCP’s annual defined benefit (DB) pension scheme survey showed an increase in schemes targeting run-on/self-sufficiency, at least over the shorter term, as compared to full insurance as soon as affordable – across all size brackets under £5bn.

The consultancy said this trend is expected to persist as the next UK government implements the Mansion House reforms, giving pension schemes a wider range of options.

Ruth Ward, principal at LCP, said the pension risk transfer market is experiencing “rapid change”. “As 2019 and 2023 demonstrated, the market has the capacity to handle large numbers of giant buy-in/out deals, even if they come along in a single year.”

She added: “We expect the total number of insurers in the market to reach a record 11 by the end of the year following a surge in new entrants.”

Ward pointed out that demand from large schemes continues to be strong but the £1bn+ transactions the market is currently seeing are “lumpy”, adding that this is “likely to mean continued volatility in buy-in/out volumes”.

Charlie Finch, partner at LCP, added that there has never been “a wider and more positive” range of options for schemes choosing their endgame.

“The upcoming general election creates uncertainty but we only expect the endgame options to grow. As well as a booming buy-in/out market, DB superfund transfers are now a viable solution which we expect to see being used in a wider range of situations,” he noted.

Finch added that the Department for Work and Pensions consultation on DB options should also bring positive news giving greater flexibility for schemes and increase the attractiveness of running on for a period for some schemes.

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