Prediction 1 - Growth of an already busy market
As Sarah Collison mentioned earlier in the report, 2023 was a record-breaking year with over £50bn of bulk annuities written. This demand from the market is expected to only increase, with many schemes having changed their investment strategy to try to lock in favourable funding position and having spent much of 2023 preparing data and benefits for going to market in the coming months.
Of course, there is a risk that future demand could grow to such an extent that some schemes may struggle to get traction in the market. As Greg Robertson described in his article: The dynamics of a busy bulk annuity market, we believe that this risk is small, with current insurers previously having evidenced they can scale up to meet demand, and with prospective new insurers adding further capacity.
We have already found that following the proposed Mansion House Reforms that a number of pension schemes with strong sponsors have initiated a fresh review of their long term target and we may find more schemes choose to seek value in running on their pension scheme and delay their move to buyout. Where this is the case it is likely that these schemes will not wish to run unrewarded risks and consequently look to hedge the demographic risks using longevity swaps.
Overall given the stepped change in funding position for many I expect another busy year with growth even relative to 2023, with around £60bn of bulk annuities transacted and £20bn of longevity swaps; meaning 2024 has the potential to be the busiest year ever in the de-risking markets.
Prediction 2 - Increased focus on non-price factors when selecting an insurer
Whilst price will remain an important consideration, with more schemes considering full scheme buy-in as a stepping stone to buyout I expect that trustees will increasingly focus on other differentiating factors, such as insurer brand and reputation, member experience and financial strength, when selecting the right insurer for their scheme.
With the increase in full scheme buy-ins and buyouts over recent years, member experience should be front of mind when going through a transaction process. This is particularly true from the point of buyout when the insurer will be dealing directly with members, but even during buy-in it’s important to ensure that the insurer processes allow member quotations to provided quickly and efficiently, and ideally with any online support already available from the scheme.
As insurers grow their new business capacity, it’s incredibly important that their implementation and administration teams are able to support the growth – this is an area of the market we’re keeping a close eye on at the current time.
