Bulk annuity volume set to hit £15bn in 2016

The bulk annuity market is expected to reach £15bn next year, driven by increased competition among insurers and the introduction of Solvency II, according to LCP.

“All the ingredients are now in place for the market to break more records and provide cost-effective solutions to help pension plan trustees and companies transfer risk at affordable prices.”

Charlie Finch

The consultant’s 2015 Pensions de-risking report said the volume of buy-ins, buyouts and longevity swaps conducted next year would outstrip this year’s £10bn – the second highest year on record – and the £13.2bn written in 2014.LCP said the £5bn year-on-year increase would be driven by greater competition among insurers as new players enter the market and the introduction of Solvency II on 1 January which will give insurers greater clarity on their capital reserves.The report said this will subsequently provide easier access to new capital once investors better understand insurers’ financial situations.This year has seen Scottish Widows and Canada Life enter the market, with the former recently writing a £400m buy-in with the Wiggins Teape Pension Scheme – its first external bulk annuity transfer. The market currently has a record nine active insurers, the report found.LCP partner Charlie Finch said: ““The record level of competition and extra insurer capacity will be beneficial for pensioner buy-in pricing next year. All the ingredients are now in place for the market to break more records and provide cost-effective solutions to help pension plan trustees and companies transfer risk at affordable prices.”In addition, the report said hedging longevity risk will become more attractive to companies the closer their pension schemes get to full funding, especially in the FTSE 100 where one-in-10 company schemes are more than 80% funded.Finch said: “We anticipate that some insurers will seek to transfer historic annuity business to other insurers in 2016 as they refocus priorities under Solvency II. This will have the effect of competing for insurer capacity for buy-ins and buyouts, reducing the capacity available to pension plans.”However, he added: “Things could change very quickly. The delicate balance between supply and demand means that – despite the increase in insurer capacity – demand could quickly outpace supply, especially if investment markets improve pension plan funding levels.”