Joe Hathaway, Associate Partner, AON
The smaller end of the bulk annuity market (sub £100 million) has undergone notable change over recent years, with insurers seeking to balance a significant increase in market demand, with finite resources to both quote on transactions and then on-board schemes as they move to buyout.
Amidst a number of changes, the one that stands out is the introduction by a number of insurers of 'streamlined' broking processes. This requires scheme data and benefits to be provided in a set format, to make the quotation process more efficient. Added to that, insurers are increasingly requiring exclusivity (where a scheme partners with one insurer at the outset to provide a quotation) on a larger proportion of smaller deals.
The main driver of these changes for insurers is to make the quotation process more efficient and provide greater transaction certainty on the deals that they do quote on. Efficiency and certainty have long been front of mind for insurers when it comes to smaller transactions but the increase in market demand has led to this fundamental rethink of their approach.
These processes are now largely bedded in, and that has been reflected in the number of smaller transactions written over 2024. Over the first half of the year 110 bulk annuity deals below £100 million were written, a record number over the past 10 years and almost double the level of transactions of a similar size written in H1 2023. Figures for the full year are expected to show a similar trend.
All of this activity and change is ultimately a positive for smaller schemes, with insurers looking for ways to continue to support the settlement needs of as many schemes as possible. What it has meant is that the smaller end of the market is more dynamic and complex than in previous years.
As we reach the close of 2024 there were a couple of emerging themes that stood out based on our experience over the year:
Who's in and who's out
Three insurers – Just, Aviva and L&G – currently dominate the transactions completed at the smaller end of the market, but other insurers are also active and keen to quote at this size, making the universe of potential insurers for small schemes more fluid than ever. This increase in choice is a result of new insurers such as Royal London entering the fray and existing insurers re-adjusting their small scheme strategy, either over the short-term (for example to help support them hitting their new business targets) or as a more strategic long-term ploy, such as Pensions Insurance Corporation.
Being up to speed with the changing market landscape is therefore key to secure the right partner for a particular transaction – from our perspective, we have completed smaller deals with 6 different insurers over 2024, demonstrating the breadth of choice out there for smaller schemes.
Navigating complexity for smaller deals
With Insurers seeking to make smaller transactions as straightforward as possible for them, both to price and then administer, non-standard benefit features / requests don't fit neatly with this approach.
However, in our experience they are still willing to work with advisors to consider non-standard requests, if raised in the right way. For example, our experience of transactions this year has included an ongoing deal with benefits denominated and paid in Euro, , and a deal for a c.£40M scheme with a significant deferred premium. These aren't features that insurers typically allow for on smaller deals, but they were willing to be flexible to support these transactions.
It is important to understand that complexity shouldn't necessarily be a barrier and it is possible to find solutions in the market, even for smaller transactions. The key is to have an open dialogue with insurers and to work together to determine the best way to tackle some of these obstacles. Having strong relationships with insurers can often help when a bit of arm-twisting is needed too!
Looking ahead
It's clear that demand from smaller schemes will continue to grow, and insurers will need to respond to this in kind – what works now, might need adapting in 12 months, and insurers have shown they are willing to be proactive in this regard.
As the market continues to evolve, and with more new insurers expected to enter the market in 2025, its clear that trustees will need to be on their toes to navigate through the options available for their scheme.
The increasingly specialist nature of this end of the market means it's more important than ever to work with experienced advisers who are familiar with the changing market dynamics as well, to support trustees and sponsors to select an insurer that best meets their objectives.
