Leah Evans, EY Parthenon Head of Pension Risk Transfer, comments: “The first half of 2022 has seen strong volumes in the UK bulk annuity market, with buy-in and buy-out transactions totalling over £12bn for the first six months compared to c. £8bn for the same period in 2021. Favourable market conditions have meant many schemes have seen their funding levels improve significantly, making buy-ins and buy-outs more affordable. Deal pipelines are continuing to fill up quickly for the second half of the year, suggesting that 2022 has the potential to close with the highest annual volume transacted in the history of this market. There is uncertainty, however, over the potential impact on pricing from Solvency II and this may lead to changes in supply or demand over the next 12 months as the rule changes become clearer.
“While it is encouraging to see this high level of market growth, there is a question mark over insurer capacity to meet demand, and smaller schemes, especially those with more complex features and structures, may find it more difficult to generate interest. Insurers, however, are continuing to innovate and streamline their processes to address this. For schemes, the message continues to be that good preparation is key to a successful transaction.”
Chris Anderson, EY Bulk Annuity Consulting Lead, comments: “In 2022 we have seen continued high levels of investment by insurers in the bulk annuity market, most notably in asset capabilities and the use of reinsurance to allow providers to continue to offer competitive pricing. The improvements to solvency ratios and capital management mean that access to capital is no longer the primary constraint on volumes that can be transacted in this market, and instead the main issue now is how many quotes and transactions insurers can operationally support. As a result, we’ve seen providers investing in their teams, systems and processes to be able to support higher volumes of quotes and transactions.
“The strong growth and returns in the market have resulted in several prospective new entrants exploring entry, which could shake up the market in the medium term. The Solvency II review remains very high on the agenda of bulk annuity providers, with the impacts on capital and pricing currently uncertain. Providers are continuing to engage actively in the debate with Treasury and the PRA.”
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