Possible benefits for schemes choosing to ‘go exclusive’ include a more nimble process than a traditional bulk annuity auction and generating engagement with insurers better suited to meet the scheme’s objectives. The leading pensions and financial services consultancy’s analysis shows that up to 30% of the buy-in and buy-out market in 2022 was made up of exclusive transactions.
The guide is the first edition of a series of Spotlights on risk transfer and the firm has also published three case-studies showing how it leveraged exclusivity to achieve very attractive pricing and terms for several buy-ins.
Commenting on the benefits of exclusivity, Iain Church, Head of Core Transactions and Risk Transfer Specialist, Hymans Robertson, said: “Pension schemes traditionally focus on running an auction process with several insurers. However, another option is to run an exclusive process: going through a careful selection process to choose one insurer to work with up front, and then request pricing only from that insurer.
“For some schemes, going exclusive could lead to a better outcome than a traditional auction process, but the right approach will depend on the scheme’s circumstances and needs. A traditional market approach doesn’t always deliver a solution that fully accounts for the requirements a scheme might have, and a more tailored transaction structure through an exclusive relationship could help the scheme. For example, a scheme might need flexibility for illiquid assets, a tailored price lock or specific contractual requirements. Characteristics of certain schemes, such as their size, may mean insurers are not willing to engage in developing a solution that meet these requirements if part of a competitive process, but an insurer may take a different view if offered exclusivity.
“Exclusivity can also be powerful for catapulting small schemes up an insurer’s priority list, and some insurers are making exclusivity a condition of quoting for a small scheme. However, this isn’t just for small schemes, from analysing reported transactions and talking to insurers, we estimate up to 30% of the buy-in and buy-out premiums in 2022 were transacted this way.
“In our experience, exclusivity still leads to competitive pricing, as experienced advisers and professional trustees know what excellent pricing looks like. Insurers also know if they do not give an excellent price the transaction is unlikely to proceed, and the advisers and trustee will be less likely to select them for an exclusive process in the future.”
Commenting on the factors that will influence whether a scheme chooses exclusivity, Iain continued: “There are several non-price factors that could influence the choice of insurer once the decision for exclusivity has been made. Among the most important non-price factors are the insurer’s solvency and financial strength, as well its potential to deliver good member experience. Other non-pricing factors may include ESG credentials, capacity to deliver the transaction, and flexibility to meet the scheme’s requirements. In an exclusive process, an insurer is more motivated to work on meeting scheme-specific requirements.”
Case-studies of high value buy-ins achieved by Hymans Robertson leveraging exclusivity include:
• a £200 buy-in, in which Hymans Robertson agreed a bespoke contract structure to accommodate the scheme’s illiquid assets
• a transaction completed within six weeks of Hymans Robertson’s appointment as risk transfer adviser – capturing very attractive pricing for a £120m buy-in
• all of a scheme’s non-price requirements satisfied, including some bespoke transaction structuring, securing a £100m buy-in on attractive terms.
Hymans Robertson’s guide Exclusive broking processes – when less is more can be read here.
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