Trustees expect more from new bulk annuity market entrants

Trustees are assessing new entrants into the bulk annuity market on a much wider range of capabilities than when many of the now established insurers joined the market, a report from Hymans Robertson showed.

In September M&G returned to the bulk annuity market by concluding a £331m buy-in transaction for one of its own pension funds – M&G Group Pension Scheme – through its insurance company, The Prudential Assurance Company, making it the first new entrant to the market since 2017.

Prudential Assurance Company Ltd stopped writing bulk annuities in 2017, but continues to manage a UK back book of annuities, which total around £20bn.

With M&G returning to the market, there are now nine active insurers in the bulk annuity market including Legal & General, Pension Insurance Corporation (PIC), Aviva, Rothesay, Just Group, Canada Life, Scottish Widows, Standard Life, and M&G.

Iain Pearce, partner and head of alternative risk transfer at Hymans Robertson, said: “Trustees will have even more insurers to consider when assessing newer entrants alongside established providers.”

He pointed out that trustees are already typically assessing insurers on financial strength, ESG factors, administration capacity and quality, buyout capabilities, and brand awareness.

He said: “It’s therefore no longer enough for a new entrant to simply be willing to write long-term pensioner buy-ins at lower margins to get a foothold in the market.”

He stressed that insurers need to show their capabilities in a range of areas, and work hard to give as much assurance as possible to back up their business plans and promises.

“Trustees’ strong views on these areas will influence whether a newer entrant is seen as the right counterparty for their pension schemes,” Pearce noted.

He added that trustees that spend time considering whether and how to talk to new entrants are likely to get the most engagement. They may also benefit from some motivated providers who are looking to get a foothold in the market.

This ‘early mover’ advantage could result in preferable contractual or commercial positions, he explained, adding that trustees should consider whether their circumstances and priorities mean that they should approach a new entrant for quotations.

He said: “Planning will ensure trustees have the information they need to make decisions, and will let their pension schemes quickly lock in if they receive attractive pricing.”

Read the digital edition of IPE’s latest magazine