Source: Insurer public announcements as at June 2024. *M&G was formed from the de-merger of Prudential plc in 2019 with the UK insurance business becoming part of M&G plc
LCP expects the new entrants to transact relatively modest figures initially as they scale up their operations. However, they have the potential to add material capacity to the market over time although they will be subject to many of the same supply-side constraints the existing insurers have been navigating – they will compete for the same experienced personnel, reinsurance capacity, post-transaction resource and attractive assets with which to back their pricing.
Last year LCP projected £400bn to £600bn of buy-in/out transactions over the next decade, with the range reflecting different scenarios for the number of schemes choosing to insure. There are early signs that some schemes are increasing their focus on wider endgame options. LCP’s annual DB pension scheme survey showed an increase in schemes targeting run-on/self-sufficiency, at least over the shorter term, as compared to full insurance as soon as affordable – across all size brackets under £5bn. This is a trend we expect to persist as the next government implements the “Mansion House” reforms giving pension schemes a wider range of options.
Looking ahead to risk transfer activity over 2024, there has been a less frenetic start to the year after 2023 finished with a flurry of activity. Insurers are however reporting record pipelines with 20 or more £1bn+ transactions currently in the market or expected to be shortly – compared to the 12 such deals that completed last year and the nine in 2019. Whether 2024 sets new records for buy-in/out volumes will depend crucially on how many of the £1bn+ deals, and in particular larger £5bn+ deals, do come to market and successfully transact or whether they look at alternative options.
Ruth Ward, Principal at LCP, commented: “The pension risk transfer market is experiencing rapid change. As 2019 and 2023 demonstrated, the market has the capacity to handle large numbers of giant buy-in/out deals, even if they come along in a single year. We expect the total number of insurers in the market to reach a record 11 by the end of the year following a surge in new entrants. Demand from large schemes continues to be strong but inevitably £1bn+ transactions are lumpy and that is likely to mean continued volatility in buy-in/out volumes.”
Charlie Finch, Partner at LCP, added: “There has never been a wider and more positive range of options for schemes choosing their endgame. The upcoming general election creates uncertainty but we only expect the endgame options to grow.
“As well as a booming buy-in/out market, DB superfund transfers are now a viable solution which we expect to see being used in a wider range of situations. The DWP consultation on DB options should also bring positive news giving greater flexibility for schemes, and so increasing the attractiveness of running-on for a period for some schemes.”
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