At our Endgame Solutions Conference in May, I chaired an engaging panel discussion titled ‘New insurers entering the market and future outlook’, where I was joined by: Adam Davis, Managing Director at K3 Advisory; Dweenisha Caleechurn, Pensions Director at PwC; Gurbani Swanni Leach, Director at M&G; and Gary Needham, Head of BPA Business Development at Utmost.
With multiple new insurers entering the market, our panel explored what it might mean for schemes and their members in terms of more capacity, solutions and innovation. We started by looking at what it takes to enter the bulk purchase annuity (BPA) market, including the challenges and hurdles facing new entrants, followed by where the market is today and what the future might hold.
The shifting landscape
Industry experts are predicting the amount of UK defined benefit (DB) schemes covered by insurers through BPA deals could get close to £1trillion by the early 2030s, meaning an estimated six million Britons will have their pension liabilities insured. Several key players are entering or expanding into the BPA market including M&G who announced in 2023 their re-entrance into the bulk annuity market, the first new entrant since 2017. In addition Utmost, Royal London and Brookfield have all stated their intention to enter the market.
To enter the BPA market insurers have to go through several steps:
- First they need board and investor approval. Entering a new market requires a change in strategy and its likely capital will be needed.
- Next they need to develop a proposition, pricing and asset strategy. As insurers are making a change to their existing strategy they will also need to work with the regulators.
From a pension trustee perspective, insurers need to demonstrate accountability and build trust. Some of the insurers entering the market may not be as well-known as more established brands, so they often need to work harder to convince trustees they offer a compelling solution. It’s not just about price; it’s about proving their long-term stability, robust governance and commitment to member outcomes.
Today’s market dynamics
The market is changing rapidly. Smaller schemes increasingly have a choice between exclusive and competitive deals thanks to more streamlined processes. Larger deals, particularly those in the £1-2 billion range, are becoming common driven by favourable interest rates and improved pension scheme funding.
However, the emergence of new insurers doesn’t automatically translate to increased capacity. The limited pool of skilled professionals and challenges in establishing effective reinsurance panels are potential major hurdles. Despite these constraints, new entrants bring fresh capital, innovative solutions and some additional capacity to the market.
While new insurers bring greater choice, they also add layers of complexity to the decision-making process. Risk transfer consultants therefore need to be careful when advising pension trustees on how to approach the market. Advisers must conduct thorough due diligence across critical areas including financial strength, ESG policies, cyber risk, administration capabilities and reinsurance counterparty exposure.
Innovations and future trends
As pension trustees consider the future, buy-out remains the gold standard for protecting members’ benefits. However, the rise of consolidators, run on and other alternative solutions is expanding the range of options available. Insurers are expected to compete more aggressively, potentially introducing innovative solutions like downside risk protection and enhanced customer experiences.
The administration side of the market is set for change and will become busier than ever. With an increasing number of death claims and retirements, the industry must innovate to manage this growing workload. Generative AI could help to streamline data processes such as Guaranteed Minimum Pension (GMP) equalisation, while new risk management strategies may emerge to better hedge insurer pricing and share value among stakeholders.
Of course, pension trustees need to stay alert to new developments. With several new entrants the market is set to become more diverse and competitive. Innovations, such as insurers offering upside potential for members, could redefine the market, similar to trends seen in the US where different insurers specialise in distinct market segments.
To conclude
For pension trustees, the increasing engagement with insurers beyond just pricing is encouraging. Insurers are focusing on providing the best solutions for members, which is crucial for trustees prioritising member experience and outcomes. Trustees also play a key a role in driving industry change, as evidenced by the growing emphasis on environmental, social and governance (ESG) issues, which were not a consideration five years ago. As the market continues to change, staying informed and proactive is key to securing the best outcomes for pension scheme members.
For more information on the bulk annuity market and what pension trustees should consider, please speak to Ben Salmons or one of our Endgame Solutions team.
