Bulk annuity supply to increase in 2024: Hymans

Larger and more comprehensive bulk annuity deals are to be expected in 2024, according to consultancy group Hymans Robertson. 

More competition is also expected among insurers, with two new players believed to be ready to enter the market to meet the growing demand from defined benefit (DB) pension schemes. 

In a new report into the bulk annuity sector, Hymans Robertson forecast that this year would bring several large buy-ins worth more than £2bn as schemes continue a trend of full buy-ins covering all members. 

As insurer capacity has increased, DB schemes have moved from a multiple buy-in approach to a single buy-in approach, resulting in larger deals. This trend has led to the largest ever buy-in 12 months ago when Pension Insurance Corporation completed a £6.5bn deal with two schemes sponsored by RSA Group. 

Hymans Robertson also predicted more small transactions for schemes with less than £200m in liabilities.  

“In recent years, insurers have increased standardisation and streamlined processes for small deals in an attempt to get more out of their financial and human resources – resulting in better access to the small end of the market,” Hymans Robertson’s report stated. “We expect further developments in 2024, and more insurers could be better able to quote for small schemes.” 

Access for smaller schemes may be aided by new entrants, the consultancy said, as they were unlikely to enter the market with a large transaction. 

New entrants 

Hymans Robertson and Lane Clarke & Peacock (LCP) have both predicted that two new insurers will enter the bulk annuity market this year. Neither company specified who these new entrants might be. 

Charlie Finch, partner at LCP, said earlier this year that his firm was expecting “significant new investment” in 2024. 

He said LCP was “in discussions with six potential providers” that were considering entering the pension insurance market. This was likely to boost competition with positive effects for pricing from a pension scheme perspective. 

Iain Pearce, head of alternative risk transfer at Hymans Robertson, said: “A new entrant is likely to have the capacity to enter into only a few transactions at first. It will therefore aim to dedicate its limited resources to the transactions with the best chance of success. It may also have a preference for simplicity, and so may be less keen on schemes with complex benefit structures.  

“Trustees that spend the 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.” 

In 2023, M&G re-entered the bulk annuity market for the first time since its insurance arm, Prudential Assurance Company, exited in 2016. It completed two deals worth a combined £600m, one with the M&G Group Pension Scheme and one with the Northern Bank Pension Scheme. 

Another busy year  

Transaction volumes are expected to have exceeded £50bn in 2023, and this was likely to become the “new normal” over the next few years, according to Hymans Robertson’s James Mullins, head of risk transfer. 

He said: “Existing and new insurers have geared up well for at least £50bn a year being the new normal for buy-in volumes. Indeed, our projections indicate that buy-in volumes will be at least £50bn every year for the remainder of the decade.”  

WTW has predicted £80bn worth of bulk annuity transactions in 2024, which would be a record figure for a calendar year. 

In addition, more superfund transactions are expected after the Sears Retail Pension Scheme became the first UK scheme to transfer to a commercial consolidator in November.  

“This, along with increased activity for capital backed journey plans, means that we expect 2024 to be seen as a coming of age for the alternative risk transfer market,” Mullins said. “We also expect to see more use of innovation, such as captive insurance solutions. These allow the sponsoring employer to benefit as the pension scheme runs-off within an insurance wrapper. 

“If last year’s story was about the rapid increase in demand from pension schemes, this year’s will be about increased supply from the insurers and alternative risk transfer providers.”