Surging activity has attracted new capital providers seeking ways to participate in the growth of the UK buy-in and buy-out market. This includes current UK insurers, overseas insurers and a range of investors expressing appetite to join the market. LCP predicts two new entrants this year, either through acquiring one of the nine existing bulk annuity providers or as a new provider.
The buy-in market is expected to achieve new record volumes in both 2023 and 2024. LCP estimates that 2023 will finish on c£50bn of buy-ins/outs – comfortably exceeding the previous record of £43.8bn in 2019 – and LCP forecasts that the market will reach £50bn to £65bn in 2024, making it yet another record year. This will be driven by a record number of £1bn+ deals, with insurers reporting particularly strong pipelines of bigger deals.
Other predictions that LCP has for the market in the year ahead are:
Pricing may harden, but attractive opportunities will still be available
Despite the surge in the number of schemes seeking insurer quotations, pricing has remained highly attractive over 2023. Entering 2024, some insurers are reporting greater challenges in asset sourcing on bulk as the market settles into a higher interest rate environment. However, LCP expects there to still be attractive pricing opportunities for schemes whose advisers run an effective insurer process, attracting a good level of competition.
Greater focus on run-on, superfunds and alternatives to buy-out
The Mansion House reforms are already encouraging much positive debate about “run-on” and other endgame innovations. The impact of this will play out over the coming years and will critically depend on the appetite of any new Government to drive them forward. The long-awaited first superfund transaction by Clara in November 2023 was also a key landmark.
More exclusive sole insurer processes
With many schemes having complex and specific requirements, we expect to see further sole insurer processes over 2024, which can be effective in the right circumstances. However, LCP still sees strong demand for multi-insurer processes. All schemes – even down to £10m – can run multi-insurer processes if they wish and should not feel forced to go down a sole insurer route to access pricing.
Charlie Finch, Partner at LCP, said: “The buy-in market is on a rapid upward trajectory, and we’re expecting that to bring significant new investment to the market this year. We are in discussions with six potential providers weighing up their options for entering the market, which will be welcome news to the many pension scheme sponsors and trustees looking for a competitive market to provide a long-term, secure home for their members’ benefits.
“2024 looks on course to set new records driven by a growing wave of schemes seeking buy-in and buy-outs. Pension schemes need to recognise that market dynamics are now fundamentally different, with insurers’ operational capacity and bandwidth being stretched, but we remain positive about the market’s ability to rise to this challenge. We’re confident that 2024 will bring attractive opportunities for schemes that run effective processes.”
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