The UK's bulk annuity market: Our end of year survey 2024

2024 has proven to be another monumental year for the bulk annuity market, with major changes including a new government, an ever-evolving regulatory environment and a number of new entrants to this busy market. To gauge an idea of the experiences of the insurers in this industry over the year, we reached out to our contacts across all UK based bulk annuity providers and asked them to complete our annual market survey.

Overall, the market seems to be functioning well and has been operating in a more stable and sustainable way over the course of the last year when compared to previous years. New entrants also seem to be adapting well to the market landscape and have helped to increase capacity and offer additional solutions for schemes, which has helped to relieve previous market constraints.

 

A more manageable market in 2024

A slightly concerning trend which emerged out of our 2023 survey was that the bulk annuity market was unmanageably busy, with all respondents to last year's survey describing their experience of the bulk annuity market as "very busy" or "extraordinarily busy/unmanageable", and with a quarter of respondents also projecting that 2024 would be similarly unmanageable in terms of busyness levels.

We posed the same question to our market respondents this year and were relieved to see that, although the majority of insurers described their experience in the market as "busy", only one insurer thought that it was "too busy" and no insurers had found the market to be unmanageable over the course of 2024. The market certainly looks to be operating well and in a more sustainable way.

How would you best describe your experience of the market in 2024?

In terms of predictions for busyness levels in 2025, the responses indicated that similar levels to 2024 were anticipated, with the majority of respondents answering that they expect the market to be "busy" throughout 2025.

 

Shifting market dynamics

In our 2024 survey, the majority of insurers considered the bulk annuity market to be a buyers' market where the insurer has the stronger bargaining position.

The results of this year's survey indicate that there has been a dramatic shift in market dynamics, with all insurers considering the current state of the market to be a sellers' market where the trustee has stronger bargaining power.

The main reason cited for this is the intense competition in the market, particularly in terms of pricing, which many insurers attributed to the entrance of new players to the market throughout 2024. Stable demand as a result of larger volumes of small scheme transactions over the course of this year was also highlighted as a contributing factor to this shift in market dynamics.

 

Traditional buy-ins / buy-outs still perceived as the most attractive de-risking solution

Interestingly, all insurers considered that traditional buy-ins / buy-outs with insurers remained the most attractive de-risking solution for schemes in the market. Multiple insurers referred to buy-ins / buy-outs as the "gold standard" for schemes, particularly due to the enhanced protection offered by the insurance regulatory regime. Attractive market pricing, member perception and sponsoring employer preference were also cited as factors influencing schemes' decisions to opt for the traditional buy-in / buy-out route.

We noted that there had been musings in the market about more schemes considering run-on as a potential de-risking solution, and asked whether insurers considered that this was having a significant impact on trustees' approaches and / or on the transaction pipeline. The majority of respondents indicated that the option of run-on would not have such an impact, noting that the majority of schemes still perceive insurance as the "gold standard" of security for scheme members, and that it in any event run-on would likely only be a viable option for larger schemes. One insurer commented that some schemes may choose to run-on for a slightly longer period in order to improve data quality and to run-off illiquid assets, which was perceived as being a positive approach for the market overall.

 

Impact of new entrants

In last year's survey, 63% of respondents predicted that they were expecting a meaningful new entrant to the bulk annuity market in 2024.

This prediction has been realised, with 2024 seeing in the arrival of new entrants to the market, and we therefore asked the insurers about the impact they thought these new entrants would have over the course of 2025. Further details of the exciting offerings of new entrants, Royal London and Utmost, are set out at the end of this report.

The majority of respondents indicated that new entrants would be likely to have a minor to moderate impact over the coming year. Many insurers noted that new entrants would likely focus initially on the small schemes section of the market and that it will likely take some time before new entrants are able to write material volumes and have a meaningful impact in such an established and mature market.

What do you anticipate will be impact of new entrants (if any) over the course of 2025?

When asked about the biggest challenges for new entrants breaking into the UK pensions de-risking market, the majority of insurers responded that brand recognition and trustee trust would likely be the largest hurdle. Pricing sensitives and overcrowding of the market / competition from more established insurers were also cited as potential barriers, along with resource constraints and internal expertise.

 

Increased appetite for small schemes

Earlier this year, we carried out a market survey of leading pension consultants, the results of which clearly demonstrated that consultants thought that the bulk annuity market had expanded to welcome small schemes and is open for business to schemes of all sizes.

In light of this, we asked our insurer respondents for their views on quoting for deals below GBP100 million. Nearly half of the responses indicated that the insurer would be happy to quote. One-third of respondents indicated that they would be happy to quote if there was a streamlined process in place.

We also asked whether it was anticipated that more insurers would expand their offerings to include streamlined propositions for small schemes during 2025. The majority of respondents indicated that there would likely be an expansion of small schemes offerings over the course of the next year, although one insurer noted that this is now a competitive space so it may be difficult for insurers to break into.

When asked whether new entrants to the market have had or would be likely to have an impact on small schemes' ability to transact, the vast majority of responses indicated that new entrants would likely facilitate more small schemes transactions due to increased capacity and the fact that many new entrants are targeting the smaller end of the market. For those who responded that there would not be an impact on small schemes' ability to transact, one indicated that sufficient capacity is already provided by the insurers currently operating in the market, while another suggested that new entrants may struggle from an administrative perspective to be able to transact large volumes of small schemes.

 

Strengths for winning transactions

When asked what insurers perceived as their main strengths for winning transactions, administration capacity and quality and brand reputation / member perception were identified as key factors for success.

Friendly approach to negotiations and existing relationships with consultants, trustees and / or sponsors were also highlighted in the responses.

Some insurers also noted that their price lock structures and approach to illiquid assets also enhanced their chances of winning a transaction, while two insurers indicated that ESG factors may also play a role.

Beyond price, what do you perceive as your three main strengths for winning transactions?

 

Attitudes towards funded reinsurance

The topic of funded reinsurance has been prevalent in the bulk annuity market over the past year. In light of this, we asked insurers to describe their current risk appetite in relation to the use of funded reinsurance.

There was some variation in the responses we received. Some insurers responded that they are not currently using funded reinsurance, while others indicated that they use it moderately but are selective in terms of the transactions on which they use funded reinsurance.

When asked whether they anticipated that their current risk appetite towards funded reinsurance would be likely to change over the course of 2025, all insurers responded that they did not anticipate any change in the current approach. Several insurers noted that given the greater focus on insurers' use of funded reinsurance from both the Prudential Regulation Authority (PRA) and trustees, insurers would be unlikely to increase its use on upcoming transactions.

Having said that, there is a general sense of a steady state following the PRA's interventions as all insurers responded that they had not, and would be unlikely to, make changes to their reinsurance strategy as a result of the PRA's Supervisory Statement (SS 5/24) on Funded Reinsurance which was published in July 2024.

We also queried whether insurers considered that trustees should be concerned about the use of funded reinsurance. Again, there was some variation in the responses, with 73% of the surveyed insurers indicating that trustees should not be concerned. Of the 27% who indicated otherwise, the general view was that trustees should engage with insurers about their use of funded reinsurance to understand its impact. Although there was some indication that trustees should keep funded reinsurance on their radar, the stronger view seems to be that the regulatory environment around funded reinsurance, including the counterparty strength of funded reinsurers, over-collateralisation in these transactions and the requirements around the MA eligibility of assets coming back on recapture, should largely dispel any trustee concerns.

"We believe measured use of reinsurance as a means of prudent risk management remains appropriate. We welcome the PRA's supervisory statement in this regard, which ought to provide Trustees with comfort that the regulatory framework remains robust."

 

Challenges ahead

We queried what were perceived to be the biggest challenges for insurers in the UK de-risking market, both over the course of 2024 and going into 2025. Key trends that emerged include:

• Government policy
• The proposed PPF consolidator
• Market capacity constraints (in particular, administrator capacity and backlogs)
• People resource and asset sourcing
• Data quality

It will be interesting to see how these challenges present themselves and how the market approaches these obstacles over the course of the next year.

 

Priorities for the future

We asked insurers what their main business priority was for 2025.

A key trend that emerged from the results was that insurers were aiming to prioritise external relationships. One insurer specifically emphasised the importance of collaborating with scheme advisors and administrators to try and improve data quality in order to expedite the move to buy-out.

Internal infrastructure, people and resources were deemed to be the key focuses for 2024 based on the results of last year's survey. Several respondents to this year's survey still cited these as important priorities for the year ahead, in particular the retention of resource and people.

Ensuring that business continues to be written in a capitally efficient manner and prioritising continued sustainable growth were also mentioned by insurers in their responses.

What is your priority for 2025?

 

Key takeaways from the year

We asked the insurers to share any key takeaways, thoughts or observations that they had on the bulk annuity market over the course of 2024. Some of these are summarised below:

• One insurer noted that the 2024 market had lots of small cases and lots of GBP1bn transactions but relatively few cases between GBP200m - GBP1bn compared to previous busy years, and said that it would be interesting to see if this was an anomaly or a trend. This insurer also commented that they expected that illiquid assets would likely be less of an issue as schemes have had more time to address them before transacting.
• Another commented that schemes which were prepared to work openly with an insurer and in a collaborative – rather than a combative manner – are the ones who achieved the best results.
• A further comment was that timing is key – the first half of the year was relatively quiet compared to the second half of the year. There is capacity to meet this demand but not if all schemes come to insurers at the same time. Understanding when insurers are likely to be busy and approaching them at the right time will lead to better engagement from them.
• One of the other surveyed insurers commented that there has been a significant number of new entrants / re-entrants after a long period of little change in market participants. This insurer said that it was worth noting that these new entrants / re-entrants are likely still building up capabilities and capacity and that this would likely come to fruition next year via increased insurer supply and wider proposition offerings.